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The IMF's FIScal AHatrs Depanment 1s seek1ng expens to ftll rwo Regional Public Financial Management (PFM) Advisor p0$itions at the Caribbean Regional Technical Assistance Center (CARTACI, based in Barbados The appointments would be for an tnrtl!ll periOd of one year. on a renewable bas1s. subject to strong performance Applicants should have a uniVerSity degree, a1least 10 years of expenence 1n a sen1or hne or advisory poSitiOn w1th1n a rnn•stry of ftnance. treasury, or a related budgetary tnsututoo; and/or have acuvety managed, or part1CIPlr commumtees ~ teilchers. doctors. nuN~es or soc1al worker!> UNRWA rv1ces of a seasont:d, lnnov;)llve manager highly molrvated to provide sktl!ed leadership 10 ttw! postlion of.
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The Oerector, External Rel.111on~ and Commun1cahons Department 1s the Commrsstoner General.., prtnCipal support 10 the effort to mob1h1e the htgh volumes of funds and ruoun::es needed to assure the ach1evement of UNRWA"s moss1on en en envcronment whero ~url"1!nt and sev.re lund1ng shortfalls constrain 1t" aboltty to maentaen 5ervrces to the requrs1te IP.Yels of quahty and conslfo!ency. The 01~tor leads 1n1tfat!V9$ and aciiVItle~ to obtam tilt> fundr. and resources needed to susca1n and 1mprovt' UNRWAs programmes. operauonro and So>rvcces. u well <Js lead~ and coord1n.ltl'S tl"!e A.genc:y· W1dl' rmpl~mentat1on of the RMOun::e Mabllizauon Agenda Thos Agenda ;nctudr. 110t only nurtunng relationships wllh UNRWA"s traditiOnal b1later;al and mullllllteral donor5 but d~~~elopong a ni'W capoc1ty for publtc pnvate partner5h1ps aod ensurrng more strateg1c me-.sag1n9 through trad111onat and new mt'dla to our mult1pl" stalleholders Slhe 15 mscrumental m dewlopong and 1mplementeng In coonltrwtoonw1th the Spokttspenon llnd lh• Comm•!i!olonl!f ~nerat's Olf1C1 communlcauons str11191ts and coherent mes~>.tgtng that enhance the elfechVf'n.ss and 1mpact of UNRWA"s external ret.t•ons, fundracs•ng and resoun::e mOblhlitiiOI\ Objl!CtMlS For detaols ol the vacancy and the mformatoon on how to apply VISrl http:// jabs.unrwa.org UNRWA encourages applJcateons from quahhed and e~penenced women. Closing date for lppllcahons Is 31 January 2012.
The Economist December 31st 2011
15
Grief and fear It seems unlikely that KimJong U n will want to reform North Korea, but even less
likely that the regime can go on resisting change F NORTH KOREA were not so tragic and dangerous, the scenes broadcast to the world after the funeral of Kim Jong II would have been comic. Waves of mourners outdid each other in grief. Men, women and children tore at their clothes in homage to a man who for 17 years kept his people in a state of isolation, poverty and indoctrination unparalleled in the modern world. According to the state news agency, "even the sky seemed to writhe in grief" at the demise of the "great saint born of Heaven". There was pathetic gratitude when tin mugs of warm milk were put into trembling hands- proof, it was reported, of the solicitousness of Kim }ong Un, third son of the "Dear Leader" and heir to his murderous regime. In his glass coffin, the dead Kim had lain in the Kumsusan mausoleum, his head on a white cushion, his body draped in a red blanket whose colour matched the flowers- his cherished Begonia kimjongiLiathat surrounded his corpse. If the mass grieving filmed in Pyongyang was a mixture of brainwashed reverence, genuine fear of the unknown, choreography, and the seditious risk of looking nonchalant,
I
the images of the young Un at the foot of his father's coffin were a study in how to make a ruling clique look sombre, steadfast and united. That was quite a feat for what by North Korean standards was a hastily arranged succession. For over two years the Dear Leader had been ailing, which was not much time to groom Kim Jong Un- his father had decades to cement his succession to Kim ll Sung, the Great RUSSIA
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Leader, who died in 1994. Kim}ong Il's own death on December 17th, of heart failure, came as no surprise. But next April is the tooth anniversary of Kim Il Sung's birth, and his son was to have overseen the celebrations, which North Koreans have been promised will mark the country's elevation to something like developed-country status. Presided over by the callow Kim Jong Un, the milestone will now look even more hollow. The dead Kim has left a failing, nucleararmed, totalitarian state in the hands of a youth who has rarely if ever made a public utterance, and who is so unknown outside his small circle of advisers that it is not clear whether he is 27 or 28. He may have got the job in part because his elder brother, Kim}ong Nam, was caught trying to enter Japan to go to Tokyo Disneyland in 2001; he subsequently moved to, and gambled in, Macau. Just 15 months after he was named as heir-apparent, Kim Jong Un was officially dubbed the "Great Successor" on Decemben9th, when state media finally reported his father's death. Nominally, at least, that puts North Korea's 24m people, many of whom are so destitute they supplement their meagre maize-based subsistence with grass and whatever else they can forage, under his heel. They are spied on by neighbours, and live in a fearful uncertainty, not knowing what might befall them or their families if they step out of line. To keep order at home, and enemies abroad at bay, Mr Kim inherits a standing ~~
16 Briefing Succession in North Korea
The Economist December 31st 2011
~ army of perhaps 1m soldiers, with
ballistic missiles aimed at South Korea and Japan, and a small arsenal of nuclear weapons. China and America, which keep troops on his country's northern and southern flanks respectively, have been pressing the regime to give them up; but their disagreements on how to treat the rogue regime have not helped defang it. The fate of Muammar Qaddafi after he gave up his nuclear-weapons programme will not encourage Mr Kim to abandon North Korea's. He is not alone at the controls. Standing conspicuously behind the heir are an apparent troika of regents: his aunt, Kim Kyong Hui, her husband, ]ang Song Taek, both longtime confidants of his father, and another ally of his father, General Ri Yong Ho, the boy king's umbilical cord to the army. Together with his late father, the regents appear to have purged potential rivals and promoted allies in clearing the path for succession. China, North Korea's closest ally and begrudging patron, has, at the urging of Pyongyang, ratified the ascension in its official condolences, addressed to the nation "under the leadership of Comrade Kim Jong Un". South Korea and America chose not to convey official sorrow at the passing of a dictator who terrorised their countries with bombings, kidnappings and nuclear provocations. When South Korea indicated it would allow only a small delegation to travel north to express their condolences, Pyongyang's propaganda machinery, true to form, threatened to meet any obstructions from Seoul with "unpredictable catastrophic consequences". Avoid ing chaos Since the elder Kim first fell gravely ill from a suspected stroke in 2008, North Koreawatchers in Washington, oc and elsewhere have predicted that a chaotic succession would be the greatest threat to the regime. However, after the 51-hour hiatus before Mr Kim's death was announced, many say that every step has been taken to signal, both to outsiders and to the nation, that the country remains firmly in the grip of its founding family. The organs of state have begun churning out paeans to the young Kim, who appears set to assume his father's huge collection of titles, including (most prosaically) supreme leader of the revolutionary armed forces, and head of the Korean Workers' Party. Visitors to North Korea say that after more than 6o years there is still reverence for the Kim name, partly because of nostalgia for Kim 11 Sung, the revolutionary father of the nation, who had the good fortune to die just before a famine killed about 1m people and the state's food-distribution system collapsed. Kim Jong Il has overseen mass starvation and diverted huge resources to his dream of building a nuclear weapon to blackmail
Normality in a st range country the outside world. But his subjects have no avenues to express dissatisfaction; and, for many, the Kim family mythology- with all its fascistic xenophobia- is all they have to believe in. What is more, the clique of Kim family members, generals and senior government officials whose loyalty has stood the test of purges may have as much to lose as their young protege from the collapse of the regime. Bradley Martin, author of a comprehensive account of the Kim dynasty, believes the ruling clique has every reason to fear the loss of its privileges. That keeps personal ambitions in check. When communism fell in Eastern Europe, North Korean media showed videos of formerly high-ranking East German officials reduced to selling sausages on the street. "This was intended to remind the elite where their loyalties needed to lie," Mr Martin says. They are not the only beneficiaries of the regime. In Pyongyang visitors say life has improved recently for Kim family loyalists, which may explain the berserk expressions of grief. Though power cuts persist, tens of thousands of cars throng the streets, compared with empty thoroughfares just five years ago, and a middle class is developing that is separate from the power elites. There are now hundreds of thousands of mobile-phone users on the regime's network, with international calls for some. And a few department stores are wellstocked, with no need any longer to usher foreign visitors quickly past shops with prices, but no goods, on their shelves. Indeed, Kim Jong Il's last public appearance was at an upscale Pyongyang supermarket; its staff, it was reported, wailed and threw themselves into each other's arms on hearing of his death. Foreigners who travel to other cities say
these too have some residents with what one visitor calls "semi-disposable income". In one city, Hamhung, a charity worker reports high-heeled shoes, clean imported clothing, nice winter jackets, all alongside tattered old clothing. The benefits, though, come to those with family connections in the party and the army and to those with relatives in China. That allows them to take part in the semi-tolerated black-markets which have sprung up in the void left by the collapse of the food-distribution system. Yet even in the early months of the regime, internal stability cannot be taken for granted. Surrounded by crusty generals three times his age, an insecure young leader might just resort to hot-headed measures to assert himself. Analysts point to rumours that he helped orchestrate murderous attacks on South Korean targets in 2010 as evidence of a brattish malevolence. Old tensions between the army and the party could resurface, especially over the former's involvement in the cross-border trade that fosters the black markets. Perhaps the biggest risk to the regime's stability comes from the black markets and the taste for freedoms and better living they bring. Near the border with China, North Koreans can use Chinese mobile networks to call South Korea, either directly or by paying brokers to put them through. ovos on sale on the black market show what life in the outside world, especially South Korea, is like. Growing understanding of North Korea's economic backwardness seems likely to breed hunger for change. Food or bullets? From a dictator's perspective, the markets may be the trickiest issue to manage. Shut them down and risk revolt; leave them alone and a growing number of wealthy traders could form a threatening constituency. Kim}ongll experienced this. These illegal bastions of capitalism had sprung up throughout much of the country, establishing a semblance of a working economy alongside the nonfunctioning state system, and enriching a dangerous new merchant class. A 2009 currency confiscation wiped out the wealth of the most successful traders, but the move brought with it hunger and widespread anger. Adding to the potential pressure on the young Kim, 2012 marks the 1ooth anniversary of his revered grandfather's birth when North Korea is to become a "strong and prosperous nation". Some believe Mr Kim will mark the occasion by using a phrase attributed to him, that "food is more important than bullets." Dovish Chinese analysts express their usual hope that there will be a shift toward economic liberalisation. For years Chinese leaders tried in vain to convince Kim Jong n to embrace Chinese-style economic reforms; they ~~
Briefing Succession in North Korea 17
The Economist December 31st 2011 ~ might
yet choose to push those reforms with renewed vigour. Optimists suggest that, to justify reform, the young Kim could argue that his father built the nuclear weapons that made his nation "strong"; now it is the time to make it "prosperous". But pessimists, whose views North Korea's recent history has tended to support, argue that the elite will be reluctant to abandon the patronage and rent-seeking from which they have benefited. Much of the investment from Chinese firms has gone to secure mineral rights, providing little benefit to the people at large. Rajin-Sonbong, a special economic zone near China's border, has lingered as a failed promise of reform and opening for years. Korea Taepung International Investment Group, which is trying to strike mineral deals and promote Rajin-Sonbong, is overseen directly by central leaders, including Mr Kim's uncle, Jang Song Taek, who has done business with the Chinese for years. It is hard to see how the economy could be modernised without abruptly destroying the state's paternalistic ruling mythology. Much of the dark interior of North Korea is bereft not only of consumer goods but also of trustworthy information, on anything from prices to politics. Although an increasing number of people, especially in the border areas, are aware of the vast disparity between capitalist South Korea and their own workers' paradise, defectors say many still do not fully grasp how wide that chasm is. As one defector puts it, explaining why his relatives cling to their belief in the Kim family state when he sends them cash from South Korea: "There is a gap between what you know and what you believe." North Koreans are educated from early childhood to believe in the purity and superiority of their race, in the evils of the Americans and the Japanese, and of their need for an all-powerful, protecting figure to lead them. That explains the lure of juclte (loosely, self-reliance, or autarky), which is the sole ideological pillar of this mythology. Any more information would expose how pathetically the Kim family regime has failed to provide what even their poor cousins in neighbouring China mostly take for granted: not just food, but transport links, and fuel and electricity to heat homes in the winter. As it is, North Koreans need only look to the plunging value of their local currency to realise how fragile their situation is. The official rate is 15 won per Chinese yuan. Charity workers say that a black-market exchange rate of 340 won in June had plunged to 6oo won in November. With average salaries of 3,0oo-6,ooo won per month the currency is, in effect, worthless. That helps explain why much of the population is stunted by malnutrition. China, the only power with much influence over the country, is less troubled by
the long-term grinding suffering of the North Koreans than by the prospect of a leadership vacuum leading suddenly to economic collapse and a flood of refugees. Such a prospect threatens to cause wider instability. If China tried to control the ensuing chaos by moving troops to the North Korean side of the border, hackles would rise in South Korea, which fears China's territorial demands on a piece of the peninsula that it considers almost sacredly Korean. It would also send shock waves through Asian countries fearful of Chinese . . expansiOmsm. The nuclear option In the case of full-scale collapse, American troops stationed south of the 38th parallel would try to secure North Korea's nuclear, chemical and biological weapons and their production facilities. The locations of some of these are known- but there may be others. Such a move could lead to confrontation between American and Chinese troops on North Korean soil. America would also feel bound to support Seoul against China. For its part, South Korea, whose economy is 30 times larger than North Korea's, sees uncontrolled unification, and the refugee crisis it would probably create, as a huge threat to its stability. These fears are real, but they have led North Korea's neighbours to accept a worse evil- the status quo. Instead of abandoning the regime and hoping it would collapse, they have been vainly negotiating for it to abandon the nuclear weapons on which its survival depends. Under the late Kim the North Koreans appeared twice to promise to denuclearise, but both times they went back on their word, as well as selling nuclear technology to rogue states elsewhere. The six-party talks with North Korea, chaired by China and including America, South Korea, Japan and Russia, have been stalled since 2008.
Kim Jong Un will live in interesting times
America's then defence secretary, Robert Gates, took a tough line on North Korea's deceptions, saying: "I'm tired of buying the same horse twice." Yet just before Mr Kim's death, America was negotiating ways to restart food aid to North Korea, and there was speculation that it was seeking nuclear concessions in the process. Park Syung-je, of the Asia Strategy Institute in Seoul, believes the young Mr Kim will play upon his father's death to recommence the merry-go-round. The North Korean strategy, "provoke, negotiate, rinse, repeat", will, he believes, make fools of its six-party interlocutors again. Perhaps the most confounding aspect of North Korea is that, however much it has depended on Chinese investment and Western aid since the collapse of the Soviet Union, the outside world cannot do much to influence its internal dynamics. So deprived are its people of both external and internal sources of information that theregime has been able to assert control. So dependent are they on its favour that North Koreans have become accustomed to policing themselves. Yet the country that Mr Kim inherits is not as unchanging as it appears. Mobile phones, cross-border profiteering, corruption and inequality have all flourished. The failed currency reforms led to unprecedented public anger. A few outsiders with contacts inside the country say North Koreans quietly mock the young heir who, educated in part at a smart Swiss boarding school, is hardly cut from the same revolutionary cloth as his grandfather. The Kim dynasty's biggest achievement is that, despite its fearsome cruelty, its leaders have twice died of natural causes and have even been mourned by their subjects. But even those who think the young Mr Kim will have a grip on power for some time doubt that they can keep it up. "I don't envy the boy ruler," says Mr Martin. "I just don't think he's going to die in bed." •
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For daily analysis and debate on America, visit Economist.com/ unitedstates
The Republicans
Into Iowa CEDAR FALLS, IOWA
America's primary season at last gets under way on january 3rd. After many ups and downs, as of today Mitt Romney looks best placed to win the nomination
A T EVERY stop that Rick Santorum 1""\..makes in Iowa he pointedly reminds prospective voters that he is the only Republican presidential candidate to have visited all99 of the state's counties. He will not be able make that boast for long, however: Michele Bachmann, one of his rivals, is in the middle of a bus tour that will whizz her through the full complement in just ten days. The other candidates are also racing breathlessly around the state, trying to glad-hand as many waverers as possible before the Iowa caucuses on january 3rd. That vote, which kicks off the state-by-state process of selecting the Republican nominee, marks the first formal step of the 2012 presidential election. The final burst of campaigning is particularly frenetic because the Iowa race is completely up in the air. Three candidates-Ron Paul, Mitt Romney and Newt Gingrich- are competing to win, while another three-Mr Santo rum, Mrs Bachmann and Rick Perry-must put in a solid performance just to keep their campaigns afloat. The field in Iowa has been especially fluid this year, with no fewer than six candidates topping local polls at one point or another. No candidate has polled over 25% in recent days, and most soundings show large proportions of undecided and irresolute voters, setting the stage for almost anything to happen next week. The race is so fluid in part because the sizeable chunk of caucus-goers who are evangelical Christians do not seem to have
rallied round any of the candidates. It was their support that allowed Mike Huckabee, a former Baptist minister and governor of Arkansas, to triumph in 2008 over the much better funded and organised Mr Romney. Mr Santorum has picked up the endorsement of a few prominent Christian activists this time, including Bob Vander Plaats, head of the Family Leader, an influential evangelical pressure group. But at a coffee shop in the small town of Newton he manages to turn out only a few dozen voters, many of whom say they are still shopping around. The family-values vote appears hopelessly divided between him, Mrs Bachmann, Mr Perry, and even Messrs Gingrich and Paul to some extent. The best organised campaign, by all accounts, is that of Mr Paul, a libertarian congressman from Texas, who is the current leader with just over 20% support in most MINN E SOTA I ~~ ~-------------------\ WISCONSIN ~
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bank, have no personal desks and emphasise collaborative working. Others have already started shedding their own properties: Yell, a directories business, is now using Regus memberships to give its salespeople in Britain access to office space when they want it. Drew Jones, co-author of a book on co-working, thinks that there is scope to turn empty retail space in the suburbs of big cities into large co-working facilities . Compared with city-centre offices, these would take less time for people to commute to and cost less for firms to buy or rent space in. None of this signals the end of the conventional office. Corporate cultures move slowly, for one thing. Managers worry about how to deal with issues such as confidentiality. Some job functions will always benefit from being in one location. But co-working multiplies the options that people have when they ask themselves: "Where shall I work today?" For that reason alone, it will keep spreading. •
American business
Hard times, lean firms NEW YORK
How much longer can America keep increasing productivity? VERYONE complains that corporate America is reluctant to hire additional workers. Far less attention has been paid to the flip side of the jobless recovery: theremarkable improvement in American productivity. How long can this continue? "I see no limit," says William Hickey, the boss of Sealed Air, a packaging-maker. Is he right to be so optimistic? American firms were slow to react to the downturn at the beginning of the century, and paid the price. They learned their lesson. W hen the economy slumped in 2008, they were much quicker to adjust. There was little of the fall in labour productivity that normally accompanies a recession, and this was not just a one-off "batting average" effect (in which average productivity rises because the worst performers are fired). Rather, it was a productivity boost that has continued in defiance of expert predictions that workers can only be squeezed so hard for a short while. After falling in the first half of the year, American labour productivity (output per hour) was 2.3% higher in the third quarter of 2011 than in the same period a year earlier. This was the fastest quarterly rise in 18 months. Manufacturing productivity in that quarter rose by 2.9% compared with a year earlier. America's productivity growth has been more robust than most other rich countries'- a feat many ascribe
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The Economist December 31st 2011 to its flexible labour market and a culture of enterprise. Yet some analysts expect productivity growth to stall soon. Hard-pressed workers are feeling grouchy: workforce surveys report record levels of job dissatisfaction. Many firms have been "starving the organisation to see how it can do with a lower cost structure," says Carsten Stendevad of Citigroup, a bank. Unless the economy picks up, he predicts that productivity growth will slow in 2012. (He admits, however, that he wrongly predicted the same thing would happen in 2on.) TWo things could keep productivity rising. First, workers are terrified of losing their jobs. This makes it easier to persuade them to put in extra hours or shoulder new tasks. Even in unionised firms, there have been reports of greater flexibility. Workers have been staying on the job longer rather than "featherbedding" their hours by, for example, queuing up early to clock off as soon as the shift ends. Second, tough times are forcing firms to strain every brain cell to become more efficient. Sealed Air, for example, has made numerous incremental tweaks, such as upgrading a machine that makes absorbent pads for supermarket meat trays so that its output increased from 400 units per hour three years ago to sso- with the same number of workers. The willingness of firms to invest in such enhancements has varied enormously. Some would rather hoard cash or buy back their own shares than spend it on more efficient machinery or information technology. Yet there are signs that leading industrial firms are starting to increase their capital spending, says Jeff Sprague of Vertical Research Partners, a research outfit. In particular, he has noticed firms investing in "debottlenecking" which, as its name suggests, means removing hold-ups in production processes, sometimes with
Robots sparking
an additional production line. There are hefty gains to be made from using more automation, says Mr Hickey, adding that although he worries about diminishing returns, "we haven't hit the wall yet." Service businesses, too, are wringing efficiency improvements from new technology. Hertz allows customers to rent cars at automated kiosks, just as airlines have for some time allowed passengers to check in without talking to anyone. Fast-food firms, such as McDonald's and Starbucks, are continuously innovating with their products and service. In short, the recession has forced American firms to become more muscular. This should help them thrive when the good times return. It should also give them an edge over foreign rivals. But all such a dvantages are temporary. As Mr Hickey points out, a factory that Sealed Air opened in Mexico was expected to be far less productive than one in America, but within four years had caught up. •
Ethnic advertising
One message, or many? The uses and limitations of ethnic ads N THE television series "Mad Men", a 1960s adman makes a pitch to a television-maker whose sales are flat. "Among Negroes sales are actually growing," he chirps. He proposes making "integrated" ads that appeal to both black and white consumers. His idea bombs. This being the era of segregation, one of his listeners wonders if mixed-race ads are even legal. Such days are long gone. America's minorities will eventually be a majority of the population: by 2045, according to the most recent census. Advertisers have noticed. Many now favour cross-cultural ads that emphasise what black, Hispanic and Asian-American consumers have in common. This approach is thought to work well with the young, who often listen to the same music, eat the same food and wear similar clothes regardless of their ethnic background. Ogilvy & Mather, a big ad agency, formed OgilvyCulture in 2010 as a unit specialising in cross-cultural marketing. "The ethnic ad model has not changed since the 1960s," says Jeffrey Bowman, head of OgilvyCulture. It was the census data that made Ogilvy change its model. In 2010 Burger King stopped employing ethnic agencies such as LatinWorks, which specialised in the Hispanic market, to address its consumers as a whole rather than taking a segmented approach. ~~
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The Economist December 31st 2011 ~
Yet some admen feel ethnicity remains relevant. "Every ten years we go through a rethink of targeted versus one voice," says McGhee Williams Osse, co-chief executive of Burrell, a Chicago-based agency specialising in the African-American market. She argues that ethnic origin is the key to people's identity, much more than education, income, religion, sex and sexual orientation. She would say that, of course.
Business 49 Maurice Levy, the boss of Publicis Groupe, the French ad giant that owns 49% of Burrell, says that ethnic advertising makes sense for advertisers that are very big (and so can afford multiple ad campaigns), or very specialised. A maker of cream for black skin, for example, will probably not bother marketing it to Asians. Nestle, a huge food firm, aims some ads at Hispanics, America's largest minority. It
Insulting advertisements
Ad hominem When rudeness sells HEIsraeli government recently raised an interesting question for advertisers: whom can you safely insult?"American Jews" is the wrong answer. An ad campaign urging Jews to return to Israel showed a boy calling his father "daddy" instead of"abba". DiasporaJews were outraged at the implication that they are not properly Jewish. Companies don't usually make such elementary errors. The list of people or groups an advertiser can be rude about is very short, reckons Bob Jeffrey, the boss ofJWT, a big ad agency. He recalls adverts from the 1960s such as "You don't have to be Jewish to love Levy's", which depicted people of various ethnicities munching on a Brooklyn baker's rye bread sandwich. Such slogans would not be kosher today. But "if you say you're not going to annoy anyone, you might as well give up," adds MrJeffrey. Insulting dictators ought to be safe, so long as you do not operate in the same country. Nando's, a South African restaurant chain, forgot that with an ad showing a Robert Mugabe lookalike glumly alone at dinner (after many of his fellow despots had been deposed). He reminisces about happy days shooting water pistols with Muammar Qaddafi, playing in the sand with Saddam Hussein and riding a tank, "Titanic"-style, with Idi Arnin. The ad was broadcast in South Africa, where Nando's middle-class target audience found it hilarious. But Nando's also has restaurants in Zimbabwe. Threats ensued. Fearing violence against its staff there, the ad was pulled. Outside America, companies can probably get away with insulting George Bush junior. In Malaysia, his face has been used to sell cars, contrasting the "not smart" president with Smart cars. However, a Toyota ad featuring Brad Pitt was banned there for being an "insult to Asians" by promoting a Western ideal of male beauty. Indeed, the existence of Mr Pitt is irritating to men everywhere. In Britain, the government takes a dim
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to love~ . . . I I, ... No longer kosher view of television ads that mock living people. In 2002 an ad was banned for depicting David Beckham, a footballer not known for his academic accomplishments, asking his wife how to spell "ovo". The advertiser's protest- that it was for a satirical TV show with much ruder lines- did not succeed. It is often profitable to stir controversy. An ad that upsets people and thereby generates headlines is an excellent source of free publicity. But if it alienates potential customers, it has gone too far. Benetton, a fashion brand, reels in young shoppers by annoying their parents, for example with a recent ad showing the pope kissing Ahmed al-Tayeb, an Egyptian imam. An edgy image helps sell clothes, but it works less well with cars, as Toyota found with an ad in Australia that mocked both Range Rover and the British queen: "Don't worry, Your Majesty. You're not the only British export that's had its day." Monarchists howled. Toyota apologised.
recruited four Hispanic mothers to blog on a new bilingual website, El Mejor Nido (The Best Nest), offering tips about parenting and healthy eating. Hispanics are younger than other Americans, have more children and spend more on food, says Juan Motta, who heads the Californiabased unit running Nestle's Hispanic campaign in the United States, which promotes both the firm's Latin American brands, such as La Lechera and Abuelita, and the rest of its larder. McDonald's has been a pioneer of ethnic advertising since the 1960s. Minorities represent about 40% of its customers in America. Neil Golden, the firm's American chief marketing officer, argues that other Americans often follow trends set by ethnic minorities. So he watches minorities for insights he can use in ads aimed at the general market. In 2010 McDonald's learned that African-Americans liked sweeter, weaker caramel mocha, so it started offering such blends everywhere, with great success. A similar thing happened with its mango and pineapple smoothies, a big hit with Hispanics. McDonald's featured the drinks in restaurants nationwide and they quickly overtook strawberry banana, the traditional favourite. David Burgos, co-author of a book on marketing to the "new majority", says that in spite of the increasing importance of minority consumers, advertisers still put ethnic ads into a separate budget- which tends to be cut first when the economy goes sour. Only 7% of marketing dollars are spent on targeted ethnic campaigns, although nearly half of Americans belong to ethnic minorities. He thinks ad-agency staff need to be more diverse. Getting the right ethnic perspective is tricky. Hispanics are a varied lot. An ad that delights Cuban-Americans may irritate migrants from Venezuela. Asians are hardly monolithic, either. Even the wittiest Korean catchphrases will provoke only bafflement in Chinatown. Saul Gitlin of Kang & Lee, an agency specialising in selling to Asian-Americans, argues that recent Chinese and Korean immigrants are best reached with communications in their mother tongue. They are generally ignored by advertisers, however, with the exception of financial firms. This is a mistake, he reckons: the median household income of Asian-Americans is some $1o,ooo higher than that of non-Hispanic whites. Many modern Mad Men think digital media will allow them to know their audiences better, and fee d them more precisely-tailored messages. This can be costly (see Schumpeter on ~ag~sQ). But many consumers seem to like it. When Latinas disagree with something the four mommybloggers at El Mejor Nido have written, they can go to the El Mejor Nido Face book page, and let loose. •
The Economist December 31st 2011
50 Business
Schumpeter Too much buzz Social media provides huge opportunities, but will bring huge problems
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HE only area of business that seems to be recession-proof is social media. Industrial firms are battening down the hatches. Banks are tossing thousands of workers overboard. But Face book is looking to raise $10 billion for a small fraction of its shares when it goes public in 2012. A recent conference in Madrid, put on by the Bankinter Foundation of Innovation, captured the enthusiasm. The assembled cyber-gurus argued that "social technologies" that allow people to broadcast their ideas (eg, Twitter), or form connections (eg, Linkedln), are some of the most powerful ever devised. They can be supersized quickly, linked together easily and spread by customers. And they can be accessed from almost anywhere. Two billion people are already online. E-commerce sales are $8 trillion a year. So, the argument goes, this more "social" element to the internet is the next great revolution. Over-caffeinated cyber-champions talk of "empowerment" and "transparency". But is all this as wonderful as it sounds? Or is it a new bubble in the making? The great virtue of social technologies, say their boosters, is that they break down the barriers between companies and their customers. They allow firms to gather oodles of information: big companies now obsessively monitor social media to find out what their customers really think about them. Social media also allow companies to respond to complaints more quickly: firms as different as Chrysler and Best Buy employ "Twitter teams" toreply to whinging tweets. More information ought to be useful, but only if companies can interpret it. And workers are already overloaded: 62% of them say that the quality of what they do is hampered because they cannot make sense of the data they already have, according to Capgemini, a consultancy. This will only get worse: the data deluge is expected to grow more than 40 times by 2020. Responding quickly to bitter tweets sounds like a nifty way to soothe angry customers. But there is a risk that companies will concentrate on a handful of activists (who tweet a lot), while neglecting average customers (who don't). They may also ignore non-customers (who are the biggest potential source of growth) and the elderly (who seldom tweet). Many firms think that they can improve customer service by using social media to respond to complaints quickly. Really? It is already virtually impossible to
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talk to a real person on the telephone. Will it be any easier online? Undaunted, cyber-enthusiasts maintain that social technologies are shifting power from a few Goliaths to many Davids. Ordinary people can easily broadcast their opinions and extend their networks. Big firms have to adjust to this new reality or go under. (As the digerati put it: "All businesses will end up looking like the internet.") But big firms can use social data to add to their already formidable influence over the consumer: Ford, PepsiCo and Southwest Airlines monitor postings on social-media sites to gauge the impact of their marketing campaigns and then adjust their pitch accordingly. And some of the most successful internetsavvy companies, such as Google and Microsoft, are as secretive about what they do as any old-line company. The "Army of Davids" argument- to borrow a phrase from Glenn Reynolds, an American blogger- is often applied to politics. For example, Ilya Ponomarev, a member of the Russian Duma, argues that social media make it easier for protesters in Russia to organise. (Russians spend more time on the internet than western Europeans, not least because they have no faith in state television.) This is true, but the secret police in many countries are equally excited about technology. New tools allow them to eavesdrop retrospectively, and to trace networks of dissidents. During the Egyptian uprising the advantage was clearly on the side of the dissidents, since the Egyptian secret police were digital dullards. But this may not be the case in China, where the regime's online snoops are highly sophisticated. Cyber-enthusiasts gush about the way social media help entrepreneurs. They have a point: disruptive technologies reconfigure old businesses and create new ones. Facebook could let companies aim their ads more accurately. Firms are starting to use internal social-networking tools, such as Yammer and Chatter, to encourage collaboration, discover talent and cut down on pointless e-mails. Youngsters are happy to embrace it, but older managers may be less keen. The use of social media within companies could be quite disruptive to traditional management techniques, particularly in strongly hierarchical firms. Dreaming up new companies is not terribly difficult: at the conference Andreas Weigend, the founder of Social Data Lab, came up with the idea of "another person's hat"; a product that allows you to don the digital identity of, say, an Islamic fundamentalist and see what the world looks like through his eyes. This sounds neat, but some of the new social-media technologies have a clown-suit quality to them. They are amusing the first time, but rapidly become tedious. A new medium: neither rare nor well-done Most commentary on social media ignores an obvious truththat the value of things is largely determined by their rarity. The more people tweet, the less attention people will pay to any individual tweet. The more people "friend" even passing acquaintances, the less meaning such connections have. As communication grows ever easier, the important thing is detecting whispers of useful information in a howling hurricane of noise. For speakers, the new world will be expensive. Companies will have to invest in ever more channels to capture the same number of ears. For listeners, it will be baffling. Everyone will need better filterseditors, analysts, middle managers and so on-to help them extract meaning from the blizzard of buzz. • Economist.comfblogsfschumpeter
51
Marginal revolutionaries AUB URN ALABAMA, CHARLESTON SOU TH CAROLI NA AND ST CROIX
The crisis and the blogosphere have opened mainstream economics up to new attack OINT UDALL on St Croix, one of the us Virgin Islands, is a far-flung, windwhipped spot. You cannot travel farther east without leaving the United States. Visitors can pose next to a stone sundial commemorating America's first dawn of the third millennium. A couple named "Sigi • Ricky" have added a memento of their own, an arrow struck heart scrawled on the perimeter wall in memory of "us". Warren Mosler, an innovative carmaker, a successful bond-investor and an idiosyncratic economist, moved to St Croix in 2003 to take advantage of a hospitable tax code and clement weather. From his perch on America's periphery, Mr Mosler champions a doctrine on the edge of economics: neo-chartalism, sometimes called "Modern Monetary Theory". The neo-chartalists believe that because paper currency is a creature of the state, governments enjoy more financial freedom than they recognise. The fiscal authorities are free to spend whatever is required to revive their economies and restore employment. They can spend without first collecting taxes; they can borrow without fear of default. Budget-makers need not cower before the bond-market vigilantes. In fact, they need not bother with bond markets at all. The neo-chartalists are not the only people telling governments mired in the aftermath of the global financial crisis that
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they could make things better if they would shed old inhibitions. "Market monetarists" favour more audacity in the monetary realm. Tight money caused America's Great Recession, they argue, and easy money can end it. They do not think the federal government can or should rescue the economy, because they believe the Federal Reserve can. The "Austrian" school of economics, which traces its roots to 19th-century Vienna, is more sternly pre-Freudian: more inhibition, not less, is its prescription. Its adherents believe that part of the economy's suffering is necessary, an inevitable consequence of past excesses. They do not think the Federal Reserve can rescue the economy. They seek instead to rescue the economy from the Fed. You tell me it's the institution These three schools of macroeconomic thought differ in their pedigree, in their beliefs, in their persuasiveness and in their prospects. Yet they also have a lot in common. They have thrived on the back of massive disillusion with mainstream economics, which held that the economy would grow steadily if central banks kept inflation low and stable, and that there were no great gains in the offing from fiscal expansion, nor any great cause for concern over financial instability. And they have
benefited hugely from blogging. Economics, perhaps more than any other discipline, has taken to r blogs with gusto. Mainstream fig- .• ures such as Paul Krugman and Greg Mankiw have commanded large online audiences for years, audiences which include many of their peers. But the crisis has made the academic establishment fractious and vulnerable. Highly credentialed economists now publicly mock each other's ignorance and foolishness. That has created an opening for the less decorated members of the guild, and the truly peripheral. In the blogosphere anywhere can be, as the title of Mr Mosler's blog has it, "The Center of the Universe". In a world beset by doubt, there are great opportunities for those happy to pursue their beliefs to their logical conclusions and thrillingly thoroughgoing in the way they do so. Is fiscal stimulus not working? Then do more of it, say the neo-chartalists. Are monopolies and price controls a problem? Then get rid of the central bank's monopoly in setting the price of credit and the supply of government money, say the Austrians. Damn the torpedoes and never mind the naysayers- acolytes in the comments section will sort them out. What's more, put into the context of a pathetic response to the current crisis, the ideas offered by these very different schools all take on a similar form: that policymakers are overly worried about something that should concern them less. The Austrians see the bogeyman as deflation, the fear of which inflates bubbles. The market monetarists, diametrically opposed, see exaggerated fear of inflation. And the economy is getting too little help ~~
52 Briefing Heterodox economics ~ from fiscal stimulus, according to neo-char-
talists, because of the government's superstitious fear of insolvency. The clearest example of the power of blogging as a way of getting fringe ideas noticed is "The Money Illusion", a blog by Scott Sumner of Bentley University, in Waltham, Massachusetts. In the wake of the financial crisis Mr Sumner, a proponent of market monetarism, felt he had something to say, but no great hope of being heard.
We'd all love to see the plan And so on February 2nd 2009 he started to blog. He was not, he admitted, a "natural blogger", which is to say his posts were long, tightly-argued and self-deprecating ("consider me an eccentric economist at a small school taking potshots from the sidelines"). But he attracted thoughtful comments and replied in kind. On February 25th, he earned a link from JYler Cowen, a professor at George Mason University whose "Marginal Revolution" blog is widely respected. And one month after he started Mr Krugman devoted a short post to rebuffing him. To be noticed by Mr Krugman is a big thing for a blogger; all the current heterodoxies court such attention, with neochartalists churning up his comment threads and Austrians challenging him to set-piece debates. The more Mr Krugman wrestles with them, the more attention they gamer- a correlation that has made him wary. "I'll link to any work I find illuminating, whoever it's from," he ./'7 writes. "I'll link to work I think is deeply wrong only if it comes from someone who already has a following." Otherwise,
i"
The Economist December 31st 2011
"why give him a platform?" Mr Sumner's blog not only revealed his market monetarism to the world at large ("I cannot go anywhere in the world of economics ... without hearing his name," says Mr Cowen). It also drew together likeminded economists, many of them at small schools some distance from the centre of the economic universe, who did not realise there were other people thinking the same way they did. They had no institutional home, no critical mass. The blogs provided one. Lars Christensen, an economist at a Danish bank who came up with the name "market monetarism", says it is the first economic school of thought to be born in the blogosphere, with post, counter-post and comment threads replacing the intramural exchanges of more established venues. This invisible college of bloggers focuses first on the level of spending on American products: America's domestic output, valued at the prices people pay for it. This is what economists call "nominal" GDP (NGDP), as opposed to "real" GDP, which strips out the effects of inflation. They think the central bank should promise to keep NGDP on a steady upward path, rising at, say, 5% a year. Such growth might come about because more stuff is bought ("real" growth) or because prices are higher (inflation). Mr Sumner's disinhibition is to encourage the Fed not to care which of the two is doing more of the work. Central banks set targets to make their currencies credible and their policies predictable. The target for many is to keep consumer prices growing at 2% a year or thereabouts. For the past few decades that has largely succeeded in stabilising inflation; but in the current crisis it has singularly failed to stabilise the economy. In America NGDP plunged overn% below its pre-crisis path and remains there; what people buy at the prices they pay for it is much less than most would want.
The market monetarists point out that their s% target is consistent with inflation of about 2%, provided the economy grows at about 3% a year, its rough average for the pre-crisis years. If growth slowed to 1%, inflation would have to be permanently higher, ie 4%. If output suffered a one-time drop, inflation might have to surge temporarily above 5%. But as growth returned to normal, inflation would recede. In pursuing this target, the central bank would use many of the same tools as today: tweaking the short-term interest rate and, when that reaches zero, increasing NGDP byprintingnewmoneyto buy more assets (ie, quantitative easing). And the very creation of the NGDP target would make such intervention more effective, Mr Sumner says. If people expect the central bank to return spending to a 5% growth path, their beliefs will help get it there. Firms will hire, confident that their revenues will expand; people will open their wallets, confident of keeping their jobs. Those hoarding cash will spend it or invest it, because they know that either output or prices will be higher in the future. A real solution If the target were not believed, the Fed would have to do whatever it takes to hit it. That might include "heroic" purchases of assets, on a bigger scale than anything yet tried by the Fed or the Bank of England. Even then, people might refuse to spend the newly minted money, or the banks might also refuse to lend it. But there are ways to make people spend, say market monetarists like Bill Woolsey of The Citadel, a military college in South Carolina. The Fed could impose a fee on bank reserves, leaving banks to impose a negative interest rate on their customers' deposits. That might simply serve to fill up sock-drawers as people took the money out of their accounts. But eventually, instead of hoarding currency, they would spend and invest it, bidding up prices and, with luck, boosting production. Thanks largely to Mr Sumner's campaign, a growing number of mainstream economists- including Mr Krugman- now favours looking at a change to NGDP targeting. At its November meeting the Fed's policy committee discussed the pros and cons of such a move- remarkable in itself for an idea so marginal just a couple of years ago. It did not, though, sweep all before it. Some committee members worried that switching to a new targeting regime could "risk unmooring longer-term inflation expectations". If inflation were allowed to rise to 5%, for example, people might regard that as permanent and set wages accordingly, even as output returned to normal. To show its mettle, the Fed would then have to restrict growth; the costs of proving its seriousness might swamp the benefits of the new regime. ~~
The Economist December 31st 2011 ~
Blogging has served Mr Sumner well, both as a medium of expression and as a venue for drawing together like-minded colleagues. But blogs are not the only way to promote unorthodox ideas. To help spread the neo-chartalist gospel, Mr Mosler ran as an independent "Tea-Party Democrat" in the 2010 Senate race in Connecticut, his home state. His belief that America is "grossly overtaxed" is one that common-or-garden tea-partiers would happily endorse; his belief that fear of national insolvency is a mirage and that there is plenty of scope for borrowing more would have them reaching for their pitchforks- or at least their balancedbudget amendments. His campaign did not meet with electoral success. Candidate Mosler's boast was that he was "right on the money". A country with its own central bank can generate an unlimited supply of money and guarantee demand for it by requiring it as payment for taxes. That gives the state scope to spend without worrying about going bust, Mr Mosler argues. It can always pay its bills, because it prints the stuff with which bills are paid. The policy conclusions neo-chartalism draws from this owe a lot to Abba Lerner, John Maynard Keynes's "militant prophet". Lerner believed governments should judge their fiscal policy by its economic results- its impact on jobs and inflation- and ignore any red ink it might spill. Governments should seek high employment and stable prices, much as the Fed does today. But instead of relying on monetary policy to meet these objectives, they should use fiscal policy instead. If private spending is too strong, pushing up prices and threatening inflation, the government should raise taxes or cut its own spending. If, on the other hand, private spending is too weak, jeopardising jobs, the government should cut taxes or increase its own spending. So far, so Keynesian. But most Keynesians, anxious to appear fiscally responsible, say that budget deficits in bad times should be offset by surpluses in good times, keeping the level of debt seemly. Lerner admitted this might not be possible. Private spending might be chronically weak. If so, the government should run chronic deficits, adding continuously to the national debt. Lerner did not see that as much of a problem, though he recognised that many others were "easily frightened by fairy tales of terrible consequences". One reason for this extraordinary tolerance towards red ink is straightforward macroeconomics. If firms, households and the rest of the non-government sector collectively refuse to spend all that they earn, they must lend the remainder to someone else. They cannot collectively lend more to each other than they borrow. So they must lend to the government in-
Briefing Heterodox economics 53
criticism. But its application has made him a lot of money. He turned a profit of over $som for his fund and his clients buying Italy's lira bonds in the early 1990s, when prominent economists flagged the danger of default. In 1996 he earned them over $10om after he pledged to buy more of a certain type of Japanese paper than the government had issued. And his bank made a monthly return on required equity of oveno% in 20nlargely by buying American Treasury bonds, betting against celebrated investors like Bill Gross of Pimco, the world's largest bond fund, who sold his fund's Treasuries in early 2011 before recognising his mistake later on. You say you'll change the constitution
stead. Private underspending creates both a need for fiscal stimulus and a simultaneous demand for the government liabilities a stimulus entails. Eventually, Lerner argued, the public would accumulate so much of this government paper that it would feel wealthy enough to spend again, sparing the government the need for further stimulus. What if the public refused to spend, but also spurned government bonds, for fear perhaps of default? That cannot happen, according to the neo-chartalists, because the government can print the money these securities promise to pay. Such a response summons hyperinflationary nightmares of the Weimar Republic, or Zimbabwe. But neo-chartalists would argue that those regimes resorted to the printing press as a way to grab more resources than the private sector was willing to yield. The government and the private sector combined wanted to buy more than the economy could produce. In Lerner's scheme, printing money serves a different role. It gives the private sector something to hold, should it not wish to buy things. Printing money is not a way to increase the deficit. It is simply an alternative way to finance a deficit of given size, one big enough to keep employment up, but- crucially- small enough to keep prices flat. This insouciance towards debt opens up Mr Mosler's ideas (which he used to call "soft currency economics") to all sorts of
In the neo-chartalist view of the world, fiscal policy comes to resemble monetary policy. When the Treasury spends, it adds to the supply of money in circulation. When it taxes, it withdraws money. So for neo-chartalism to work as intended, budget-makers must both tighten policy once demand has been restored and inflation threatens and also be credible in their commitment always to do so. Otherwise selffulfilling expectations of inflation will take root, as they did in the 1970s. That period of stagflation demonstrated the need to leave macroeconomic stabilisation to forward-looking technocrats- central bankers- thought responsive to economic news and unresponsive to political demands. If you can imagine fiscal policymakers in Congress allowing the economy to be run in such a way, then you too can be a neochartalist. Clearly the tea-partiers who would not party with Mr Mosler during his Senate bid will have none of this. Ron Paul, the libertarian Texas congressman whose 2008 presidential campaign was one of the foundations of the tea party, and whose 2012 campaign is currently enjoying an enthusiasm few would have predicted, is a balanced-budget zealot, and from his pulpit as chair of a House subcommittee on monetary policy lambasts quantitative easing as "financial malfeasance"; indeed he advocates abolishing the Fed itself. Mr Paul thus shows his colours as an advocate of Austrian economics- a resurgent school of thought that, unlike market monetarism, has not been doing much to change the minds of most mainstream economists but, unlike neo-chartalism, has built up a broad constituency on and through the web. Its adherents (including Mr Paul's fellow Republicans Paul Ryan and Michele Bachmann) differ a lot in their preoccupations and prescriptions. But they agree that interest rates should reflect the fundamental forces of thrift rather than the whims of central bankers. The Austrian school's thinking centres ~~
54 Briefing Heterodox economics ~ on
the way "malinvestment" orchestrated by central banks distorts the business cycle. By keeping interest rates artificially low, central banks trick entrepreneurs into believing that society is more abstemious than it really is. The entrepreneurs then embark on ambitious, long-gestation investment projects, only to discover that the men and materials they require are otherwise engaged in the production of more immediate gratifications. Once this realisation dawns, the entrepreneurs abandon their follies, firing their workers. If wages are flexible and workers mobile, this bust need not be too bad. But misguided attempts by the government or the Fed to prevent unemployment will delay the necessary reshuffling of labour from industries too tied up in the future to those catering to the needs of the present. Scholars such as Lawrence White of George Mason University see in this the grounds for replacing central banks with "free banking" in which private institutions take deposits and issue their own banknotes without government permission or protection. To make these liabilities credible, free banks would probably have to make them redeemable into something else, such as gold. As a consequence, banks will hesitate before expanding too quickly, lest their gold reserves come under threat. This, Mr White argues, would impose a natural check on overexpansions of credit. The resurgence of Austrian analysis is not merely a web-based phenomenon. In 198:1. Margit von Mises approved the establishment of an institute in the name of her late husband, Ludwig von Mises, one of the giants of the Austrian tradition of economic thinking. The Mises Institute set up shop at Auburn University in Alabama, attracted by a couple of "Austrian-friendly" faculty members and a timber owner willing to donate money to the cause. From early days in the shadow of the football stands, the institute now boasts its own amphitheatre, conservatory, recording studio and library. At one of the institute's soirees, accompanied by a recital on its Bosendorfer piano, Vienna may not seem so very far away. Yet the institute's impressive web presence, with ever more signing up for its online classes, makes its ideas, if not its ambience, available to all. Austrians still struggle, however, to get published in the principal economics journals. Most economists do not share their admiration for the gold standard, which did not prevent severe booms and busts even in its heyday. And their theory of the business cycle has won few mainstream converts. According to Leland Yeager, a fellow-traveller of the Austrian school who once held the Mises chair at Auburn, it is "an embarrassing excrescence" that detracts from the Austrians' other ideas. While it provides insights into booms and their ending, it fails to explain why things
The Economist December 31st 2011
must end quite so badly, or how to escape when they do. Low interest rates no doubt helped to inflate America's housing bubble. But this malinvestment cannot explain why 21.8m Americans remain unemployed or underemployed five years after the housing boom peaked. Brother you have to wait
America is suffering from a shortfall of spending. Both market monetarism and the neo-chartalists are right about that. They disagree about whether the best response is monetary or fiscal. The market monetarists argue that fiscal stimulus should be redundant, because a central bank can always revive spending- if it sets its mind to it. If the Fed's efforts have disappointed, it is not because market monetarism is wrong, but because the Fed is not sufficiently committed to the cause. This is probably true. But it makes it hard for the market monetarists to clinch their case. Until a central bank truly commits to their policy, they cannot prove their point. But until they prove their case, central banks will be reluctant to commit to their policy. The market monetarists do not fret about the side effects of the activism they seek, which can misdirect capital, inflate bubbles and seduce people into over-borrowing. But these side effects give Austrian economists the heebie jeebies- and also worry the neo-chartalists, who are not convinced that private spending stimulated by easy money will restore full employment. Yet Austrians and market monetarists are united in their distaste for neo-chartalist fiscal stimulus. Mr Sumner considers it wasteful; the Austrians, downright harmful. Meanwhile mainstream economists continue to look at all the options askance, though not equally so. Some, particularly on the left, are getting quite enthusiastic about the market monetarists' NGDP targeting. Few are as keen on neo-chartalism. The late Bill Vickrey, a Nobel prize-winner, had sympathy for its take on debt, but it remains largely confined to academic redoubts in Kansas City, Missouri and Newcastle, New South Wales. As for the Austrians, Brad DeLong, a Keynesian Berkeley professor who also blogs, has called an acquaintance with their ideas a useful part of a diversified intellectual portfolio. But his frequent comrade in arms, Mr Krugman, does not seem to have revised his view that their business-cycle theory is "as worthy of serious study as the phlogiston theory of fire". His analogy implies that economics, like chemistry and physics, makes enough intellectual progress to allow economists to ignore some old thinkers. But is economics that kind of sci-
ence? Its practitioners cannot run controlled experiments on whole economies. The natural experiments that might help falsify theories do not come around often. And when they do, the refutations provided are only ever partial. What is more, intellectual schools are not simply about the rights and wrongs of specific cases. Compared to the oxygen theory that replaced it, quasi-alchemical phlogiston provided a poor account of combustion. But it captured an idea about the tendency of the world to require replenishment on which its immediate successor was silent, and which prefigured some ideas that thermodynamics would bring to science most of a century later. The bygone and the marginalised always look strange. But would it not also be strange to imagine that, in 30 or so years, economic historians will look back on the current crisis and say that mainstream macroeconomics offered the best analysis and prescriptions that could have been conceived? If they agree that it did not, then there seems a chance that they will think perspectives outside the mainstream might have helped. Decades ago macroeconomics resembled an "intellectual witch's brew", according to Olivier Blanchard, chief economist of the International Monetary Fund. It contained "many ingredients, some of them exotic- many insights, but also a great deal of confusion". Things then became more rigorous and refined: disagreements remained, but within set limits. Now, on the blogs, the economic conversation boils and bubbles again. That ferment is surely spreading into the academy- and in time some new quintessence will be • brought forth, perhaps from C materials now consideredbase. •
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Financial terrorism
The war on terabytes NEW YORK
Policymakers worry about attacks on America's financial system HE financial industry has done such a good job of bringing itself to its knees over the past four years that it is easy to overlook the threats it faces from outside. High among them is electronic attack. In 2010 Symantec, a cybersecurity firm, estimated that three-quarters of all "phishing" attacks, in which people are deceived into surrendering private details such as account numbers, are aimed at the finance sector. Bob Greifeld, the boss of NASDAQ, has described his bourse as being under "literally constant attack". Many of these assaults are carried out by hackers bent on mischief. Some are the work of organised criminal groups in pursuit of loot. But plenty of people fret that some attackers are aiming to cause more serious damage. Leon Panetta, America's defence secretary, has suggested that a cyberattack on financial markets, the power grid and government systems could be "the next Pearl Harbour". In a move that received surprisingly little attention, Barack Obama signed an unprecedented executive order in July declaring the infiltration of financial and commercial markets by transnational criminal groups to be a national emergency. It also pointed to "evidence of growing ties between [these groups] and terrorists". In a sign that Congress, too, is twitchy, its latest appropriations bill calls for a report into the risks posed by financial terrorism.
T
Officials' anxiety has grown amid circumstantial evidence that malefactors helped to exacerbate the market turmoil in late 2008. A report on the risks of economic warfare by Cross Consultingwhich was written in 2009 for the Pentagon's Irregular Warfare Support Programme (IWSP) but which surfaced only in 2on- cites a paper prepared for law-enforcement officials by a group of anonymous moneymen who were alarmed by trading patterns around the time that Lehman Brothers failed. The paper analyses trading data from American exchanges. It shows that a handful of small and midsized regional brokers saw their market share in equities trading skyrocket in 2008 to the point where some were, for a while, doing more business than giants such as Goldman Sachs and JPMorgan Chase. The brokers' business was conducted under multiple trading symbols, the market-making identities used in electronic trading so that counterparties know whom they are dealing with. The bulk of the trading appears to have been "sponsored access" agreements, under which established brokers can in effect rent their identities to other traders so that the latter do not have to jump through the usual regulatory hoops. There is no suggestion that the brokers in question were doing anything wrong. They say they were doing business with regulated entities, in-
eluding other brokers, but the report raises questions about the trades these sponsored entities were conducting. These trades were heavily concentrated in big, troubled stocks such as Citigroup and Wachovia, the survival of which was seen as critical to the stability of the financial system. They were mostly short-selling, the paper concludes, and a good deal of the shorting may have been of the illegal "naked" kind, where the short-seller does not bother to locate and borrow the shares first. (Borrowing a broker's identity could have made this easier, since marketmakers were exempt from the ban on naked shorting in certain circumstances.) Supporting this conclusion is a huge spike in trades that failed to settle at the time-in Lehman's case, the number shot from tens of thousands to tens of millions. One cause of "fails" is naked shorting, because you cannot deliver a share that you have not really borrowed.
Sponsors not being thanked Trading data alone are insufficient to draw firm conclusions about motives, but the anonymous paper raises red flags. If the brokers were inadvertently greasing the wheels for bear raiders, then who was doing the raiding? The obvious suspects are hedge funds looking to make a killing. But rumours persist of involvement by those with non-economic motives. Regulators have been tightening the rules. In November America's Securities and Exchange Commission (SEC) voted through various restrictions on sponsored access, which Mary Schapiro, the SEC's chairman, had previously likened to handing car keys to an unlicensed driver. In private, SEC staffers worry that some of the driving might be deliberately dangerous. Not every jurisdiction is moving as fast as ~~
58 Finance and economics ~ America. In an October report, the Interna-
tional Organisation of Securities Commissions (IOSCO) expressed concern that some countries' monitoring of sponsoredaccess agreements was inadequate. Sponsored access is not the only way that a determined assailant could create havoc. The "flash crash" of May 6th 2010, in which American equities spectacularly nosedived, showed the damage that can be done by high-speed algorithmic trading. It is much easier to drag markets down when they are already reeling, by the use of such things as short-selling, options and swaps, points out James Rickards of Tangent Capital, an expert on financial threats. This is what the military would call a
The Economist December 31st 2011 "force multiplier". Just how much danger America's fmancial system is in from deliberate attack is hard to judge from the outside. What is clear is that politicians, regulators and the industry have struggled to forge a coherent response. The Financial Services Sector Coordinating Council (Fsscc), an industry group that works under the auspices of the us Treasury, has developed a "threat matrix" in consultation with a group of financial regulators with an equally snappy name, the Financial and Banking Information Infrastructure Committee. But information is not always shared promptly. Banks were miffed that regulators did not tell them about a big attack on NASDAQ in
2010 until more than three months later. Within government, responsibility is fragmented. In America the Treasury, other financial regulators, the Department of Homeland Security, the Pentagon, the FBI, the National Security Agency and others all have a hand in financial cybersecurity. Dots are not always joined even within departments. The Treasury has been keenly focused on combating the financing of terrorists, for example, but appears to have given less thought to how they might use that money to undermine banks and markets. That is unfortunate. As policymakers wrestle to protect finance from its own instability, they shouldn't neglect the potential for threats from outside. •
Buttonwood Investors approach 2012. with cautious optimism NVESTORS nearly always enter a new year with a sense of hope. The mistakes of the previous year- the bad share picks, the wrong guesses on exchange-rate movements- are forgotten. New cash is put to work and there is often a "January effect" as share prices rise. It would be no surprise if history repeated itself in 2012. nue, Europe may already be in recession and the region's politicians have not yet come up with a solution to the sovereign-debt crisis. But 2on was such a dismal year for European equities that many investors must hope that the bad news is already in the price. After all, equities look more attractive than government bonds. Ten-year German bonds yield less than 2%; German shares have a yield of 3.6%, with the prospect of dividend growth thrown in. "Trailing" price-earnings ratios in Europe are barely in the double digits; in Germany the multiple is under ten. And the corporate sector is in good shape, having generated high margins in recent years and built up cash on its balance-sheet. Investors can be pretty sure about the direction of monetary policy. The Federal Reserve has already indicated that it will not raise rates, and another round of quantitative easing might be introduced if the American economy wobbles. The Bank of England seems likely to follow a similar path. In Europe it is hard to see the European Central Bank repeating its 2on mistake, when it raised rates prematurely; further cuts are possible. The developing world will probably present a more mixed picture, but easing will be more common than tightening. Central banks can be so supportive in part because headline inflation rates are expected to fall, as the commodity-price
I
rises seen in early 2onslip out of the annual comparisons. But central banks will also be conscious of the need to offset the effects of fiscal policy, which is likely to be contractionary. America may have reached a short-term deal on extending the payroll-tax cut, but austerity is likely to hold sway across Europe as the region seeks to reassure investors (and German voters) about its long-term fiscal probity. It is this issue that suggests that any initial investor optimism may be tempered as 2012 unfolds. Like children asked to eat spinach for breakfast, lunch and dinner, it is not clear how long voters will submit to a diet of austerity. The implicit deal between northern and southern euro-zone countries- bail-outs in return for deficit reduction- is unpopular with electorates on both sides. The so-called "tail risk" of a euro-zone break-up may not materialise, but it will not go away either. Nor will the political outlook in America necessarily be helpful. Markets traditionally favour Republican candidates. But were the Republicans to take control of the
presidency and both houses of Congress, there would be the prospect of aggressive fiscal tightening in 2013, along with a political leadership hostile to further quantitative easing. Meanwhile, to shore up his political base, President Barack Obama might amplify the millionaire-bashing theme of his re-election campaign. Geopolitical risks could undermine the market, too. The Middle East remains volatile. Egypt's revolution could go sour, Syria is a charnel-house and Iran is prone to sudden eruptions. The fundamental problem that has dogged the economy, and equity markets, since 2008 will remain. Growth is likely to be slow as economies emerge from a debt crisis. Authorities can intervene to prevent a repeat of the Depression but the result is still likely to be sluggish rebounds with more fre quent recessions. Add in the effect of high commodity prices (a consequence of the developing world's increased importance) and it is hard to generate the kind of multi-year rally that marked the 1980s and1990s. This does not mean investors cannot make money. Even Japan has had some so% rallies within its long bear market. But it does mean that "buy and hold" is not necessarily a winning strategy. At the start of 2on almost everyone (with honourable exceptions, such as the strategy team at Societe Generale) was bullish. The outcome was deeply disappointing. As 2012 begins, the mood is more restrained. A Bank of America Merrill Lynch survey in December found that 8% of fund managers were overweight equities (relative to their normal portfolio allocation). Such caution looks realistic. Econonrist.comfblogsfbuttonwood
The Economist December 31st 2011
Finance and economics 59
European banks
Hose and dry BERLIN
The ECB fills ban ks w ith funds
l 'I ] HEN economists think of the fmanVV cial system, it is usually as a frictionless conduit through which money flows to areas of the economy where it is most needed. A better analogy right now might be of a hosepipe with a knot tied in it. The European Central Bank (ECB) is pumping unprecedented amounts of money into one end of the pipe, but how much of that will find its way to the parched real economy is another question entirely. Start with the liquidity flowing into the euro-area banking system. On December 21St the ECB made available an eye-popping €489 billion ($628 billion) in threeyear loans to more than soo banks across Europe. The money was released in response to an almost total freeze since July in the bond markets that are an important source of long-term funding for banks. Demand for this ECB funding was much higher than expected, signalling just how much stress there is in the system. The ECB had previously tried to ease pressure by offering one-year loans to banks. Yet this had done little to encourage them to lend to companies or people, since the money banks owed the ECB would have to be repaid before they were due to be repaid by their customers. A shortage of longer-term funding also contributed to an increase in the riskiness of the whole financial system, since banks were being forced to rely ever more on short-term financing that needs to be rolled over. The flood of money being pumped into banks by the ECB goes a long way towards easing these funding pressures. Analysts at Morgan Stanley, an investment bank, reckon that the new facility adds about €235 billion in additional funding to the banks (since some of the money is being used to replace shorter-term loans) and takes the central bank's total lending to the banking system to €979 billion. More important is the fact that it only has to be repaid in three years, which takes the average maturity on ECB loans to about 2l. months, up from a mere ten weeks before the auction. This should help insulate most large banks from turmoil in the funding markets. But not all will be protected. Although the ECB has essentially made an offer of unlimited funds, banks are still constrained in how much they may borrow by the quality of the collateral that they are able to hand over. This is because their collateral is subject to an initial "haircut", or reduction in value. A portfolio of relatively
Many a slip 'twixt pump and nozzle safe government bonds might attract a small haircut, whereas one consisting of loans to small businesses might be reduced in value by 40% or more. A bank focused on this area of business, as many of Europe's smaller savings banks are, might thus only be able to borrow 60% of the value of its outstanding loans. A second constraint is that if the collateral the ECB holds falls in value, then banks
need to post more. This also happens if there are credit downgrades on the bonds posted as collateral. The ECB's haircut on sovereign bonds that are rated above "A-" is just 1.5%, but if they fall another notch this jumps up to 6.5%, Morgan Stanley notes. Weak banks in peripheral countries remain vulnerable to a downward spiral in which their holdings of government bonds are downgraded and fall in value, forcing them to come up with ever more collateral to keep borrowing from the central bank. It was this sort of collateral spiral that felle d MF Global, a bust American broker, in its ill-fated bet on euro-area government bonds. Now that banks are getting funding, the big worry is whether they will do more than merely hoard it. The early signs are not encouraging. Over the Christmas weekend bank deposits at the ECB rose to a record €412 billion. That partly reflects a traditional year-end rush to tidy up banks' balance-sheets but also nervousness about lending directly to others. Banks also have to present plans in January showing how they will raise an extra €us billion in core capital to meet a new threshold imposed by the European Banking Authority. This capital shortfall has already prompted asset sales by banks, which would rather shrink their balancesheets than tap shareholders. The ECB's auction may make a credit crunch less severe, but it is not enough to avoid one. •
Chinese sovereign debt
The bonds that tie TOKYO AND HONG KONG
Japan wants to buy Chinese government bonds
N THEautumn of 2010, when he was Japan's finance minister, Yoshihiko Noda decried it as "strange" that China had bought up as much as ¥2.3 trillion (then $25.5 billion) in Japanese government bonds while its own debt was off-limits to outsiders. Now prime minister, Mr Noda is redressing the balance. At a summit in Beijing on December 25th the two countries announced an agreement to let Japan buy Chinese sovereign debt. No sum or timetable was disclosed, though Japanese news media reported the amount will reach $10 billion once China approves Japan's application. Both countries say the agreement symbolises the growing importance of their economic ties, which have long been warmer than their diplomatic ones. China is Japan's largest trading partner; Japan counts as China's biggest after America. But the deal may also be a signal. Officials in Tokyo fret that China's purchases of Japanese bonds fuel the yen's appreciation. By negotiating for
I
approval to own Chinese debt,Japan can register its discomfort with China's actions and gain some influence of its own. Japan will not simply be able to buy whatever it likes, however. China seems happy for foreign central banks to hold limited amounts of its bonds as another step in the internationalisation of the yuan. Malaysia reportedly already enjoys the privilege, among others;Japan is set to be the first G7 country to do so. But China will not do anything to compromise its control of the exchange rate. Fred Bergsten at the Peterson Institute for International Economics, a think-tank in Washington, oc, once argued that America should dispense with the niceties and exert upward pressure on the Chinese currency via the offshore market instead. He advised America to buy instruments such as the yuan-denominated "dim sum" bonds now on offer in Hong Kong. Quite what effect that would have on the exchange rate is unclear, but the message would be unmistakable.
The Economist December 31st 2011
60 Finance and economics 2011 revisited
Charting the year N 2008 banks were saved by governments. The question that dominated 2011 was how to save governments. The euro-area sovereign-debt crisis metastasised from a problem affecting small, peripheral states to one that threatens the single currency itself. The rise in Italian bond yields in particular marked a dangerous new stage in the saga (chartl). European banks, stuffed full of government bonds, have suffered a severe funding squeeze since the summer (chart 2). The euro was oddly resilient against the
I
I
dollar, but Switzerland and Japan intervened to hold down their currencies as investors sought shelter (chart 3). Faced with skittish creditors, countries in Europe tried to instil confidence by cutting spending (chart 4). Austerity and growth do not mix, however. Euroarea GD P remains below its pre-crisis level. American output did at least regain that mark in 2011 (charts) but us unemployment remained very high. The emerging economies again outshone their rich-world counterparts
in terms of growth andjobs.Butfears about inflation (chart 6) slowly gave way to fears about growth as the year went on and Europe's problems worsened. Emerging-market stocks dropped sharply in the summer as investors put their money into less risky assets (chart 7). Gold also benefited from another year of fear. The metal was set to post its nth consecutive annual gain in 2011 (chart 8). Go ogle searches for "gold price" rose whenever measures of market uncertainty did (chart 9). If governments aren't safe, after all, what is?
When Europe sneezes Government bonds Percentage-poi nt cha nge in ten-year yields, Janu~ry 3rd- December 26th Ten-year government bond yield, December 26th
2 -
+
2
Bank deposits held overnight at the ECB, Ebn
Euribor·Eonia spread, basis paints
500
100
400
80
300
60
200
40
100
20
Trade-weighted exchange rates January 3rd=100
120 Swiss franc
8
6
4
IJ
European bank funding
Greece
110
137.181
Portuga l
113.091
§]
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~ ~
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Government budget balance Change between 2010 and 2011*, %ofGDP . - - - - - - - - ----, Budget balance,% of GOP, 20tt• INCREASED OEFIUT ~ I ~ REOUCEO DEFICIT
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2011
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30
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-
India Britain
-
Euro area
us
China Japa n
-
China
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Japan
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us
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Germany
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8IJ
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104
Brazil
102
us
Greece
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Japa n
Germany
l.u.l
Spai n
Spain
[ill
Italy
Capital markets Total return index, J~nu~ry 3rd=100 US Treasuries Developedcountry equities - Emergingmarket bonds Emerging-market equities
106
•
GOP Employment
Commodity prices J~nu~ry 4th=100
J
F
M
A
M
J
J
A
s
0
N
2011
IJ
Fear indices
140 Gold
Google searches in US for "gold price~ January 3rd=100
S&P500
Volatility Index
300
60
250
50
200
40
150
30
100
20
50
10
130
110
120 110 90
100
80
..... J
F M A M J
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Sources: Bank ofEngland; Bloomberg; ECB; Google; Haver Analytics; OECD; Thomson Reuters; The Economist
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2011
•Estimate Iwest Texas Intermediate
The Economist December 31st 2011
Finance and economics 61
Economics focus How to get a date The year w hen the Chinese economy w ill truly eclipse America's is in sight
N THE spring of 2011 the Pew Global Attitudes Survey asked thousands of people worldwide which country they thought was the leading economic power. Half of the Chinese polled reckoned that America remains number one, twice as many as said "China". Americans are no longer sure: 43% of us respondents answered "China"; only 38% thought America was still the top dog. The answer depends on which measure you pick. An analysis of 21 different indicators chosen by The Economist (the full set is at economist.com/chinavusa) finds that China has already overtaken America on over half of them and will be top on virtually all of them within a decade. Economic power is best gauged by looking at absolute size rather than per-person measures. On a few indicators, such as steel consumption, ownership of mobile phones and beer-guzzling (a crucial test of economic superiority), the milestone was reached as long as a decade ago. Several more have been passed since. In 2011 China exported about 30% more than the United States and spent some 40% more on fixed capital investment. China is the world's biggest manufacturer, and partly as a result it burns around 10% more energy and emits almost 40% more greenhouse gases than America (although its emissions per person are only one-third as big). The Chinese also buy more new cars each year than anybody else. The country that invented the compass, gunpowder and printing is also challenging America in the innovation stakes. We estimate that in 2011 more patents were granted to residents in China than in America. The quality of some Chinese patents may be dubious but they will surely improve. The World Economic Forum's "World Competitiveness Report" ranks China
I
I
Overpowering Year in which China:
overtakes
the United States
China/ US ratio
1999 01
Steel consumption Mobile phones
~
Exports Fixed investment Manufacturing output Energy consu mption Car sales Patents granted to residents Retail sales Imports GDPat ppp• GDP at market rates Stockmarket cap. Consu mer spending Defence spending
--o
., -tla
ro.sl-- -$
Sources: BP; CEIC; I MF; ITU; Thomson Reuters; WIPO; World Bank; WFE; World Steel Association; The Economist estimates
-
$
*Purchasing-power parity
Interactive: Make your own predictions for which year China's GOP will eclipse America's, and find even more indicators at Economist.comfchinavusa
31st out of 142 countries on the quality of its maths and science education, well ahead of America's 51st place. China's external financial clout also beats America's hands down. It has total net foreign assets of $2 trillion; America has net debts of $2.5 trillion. The chart shows our predictions for when China will overtake America on several other measures. Official figures show that China's consumer spending is currently only one-fifth of that in America (although that may be understated because of China's poor statistical coverage of services). Based on relative growth rates over the past five years it will remain smaller until 2023. Retail sales are catching up much faster, and could exceed America's by 2014. In that same year China also looks set to become the world's biggest importer- a huge turnaround from 2000, when America's imports were six times those of China. What about GDP, the most widely used measure of economic power? The IMF predicts that China's GDP will surpass America's in 2016 if measured on a purchasing-power parity (PP P) basis, which adjusts for the fact that prices are lower in poorer countries. But America will only really be eclipsed when China's GDP outstrips it in dollar terms, converted at market-exchange rates. In 2011 America's GDP was roughly twice as big as China's, down from eight times bigger in 2000. To predict how quicldy that gap might be closed, The Economist has updated its interactive online chart (also at econornist.com/chinavusa) which allows you to plug in your own assumptions about real GDP growth in China and America, inflation rates and the yuan's exchange rate against the dollar. Our best guess is that annual real GDP growth over the next decade averages 7-75% in China (down from 10.5% over the past decade) and 2.5% in America; that inflation (as measured by the GDP deflator) averages 4% and 1.5% respectively; and that the yuan appreciates by 3% a year. If so, then China will overtake America in 2018. That is a year earlier than our prediction in December 2010 because China's GDP in dollar terms increased by more than expected in 2011. Second place is for winners Even if China became the world's biggest economy by 2018, Americans would remain much richer, with a GDP per head four times that in China. But Rupert Hoogewerf, the founder of the annual Hurun Report on China's richest citizens, reckons that it may already have more billionaires. His latest survey identified 270 dollar billionaires but the true total, he says, is probably double that because many Chinese are secretive about their wealth. According to the Forbes rich list, America has 400 billionaires or so. America still tops a few league tables by a wide margin. Its stockmarket capitalisation is four times bigger than China's and it has more than twice as many firms in the Fortune global soo, which lists the world's biggest companies by revenue. Last but not least, America spends five times as much on defence as China does, and even though China's defence budget is expanding faster, on recent growth rates America will remain top gun until2025. Being the biggest economy in the world does offer advantages. It helps to ensure military superiority and gives a country more say in fixing international rules. Historically, the biggest economy has become the issuer of the main reserve currency, which is why America has also been able to borrow more cheaply than it otherwise would. But it would be a mistake for American leaders to try to block China's rise. China's rapid growth benefits the whole global economy. It is better to be number two in a fastgrowing world than top dog in a stagnant one. •
62
Property
certain information. interested parties will be provided with access to the online dealroom (including access to det ailed draft contracts).
5. Quantity or scope of contract:
INVITATION TO TENDER THE OLYMPIC STADIUM
This image is indicative only.
THE OLYMPIC STADIUM WILL BE THE CENTREPIECE OF THE LONDON 2012 OLYMPIC AND PARALYMPIC GAMES. WE INVITE YOU TO JOIN THE OLYMPIC PARK LEGACY COMPANY IN CREATING AVIBRANT AND LASTING LEGACY FOR THIS ICONIC VENUE.
OLYMPIC PARK LEGACY COMPANY
Interest ed parties m ay bid for concessions with a minimum term of 5 years and a m aximum term o f 99 years, from the date of completion o f the transformation. Concessionaires m ay. during the life o f a concession. request an extension to the term o f a concession in multiples o f 5 year time periods subject to certain conditions, including that the m aximum term does not exceed 99 years.
6. Conditions relating to the contract: Deposit s. guarantees, parent company guarantees, bonds, collateral warrant ies or other forms 1. Contracting authority: Olympic 1 of securit y m ay b e required. Bids Park Legacy Company Umited (OPLC). from companies. consortia or joint ventures will be considered. 2. Contact: Further inform ation, 7. Conditions relating to including in relation to registration partidpation: The invitation to o f interested parties, can be tender will contain certain minimum obtained at : www.legacycompany.co.ukJstadium requirem ents that must be included All reque5ts for informat ion and any in each bid. Bidders m ay be req uired questions should be sent by email to to team with other bidders, to t ake a particular legal form or to undertake
[email protected] joint and severa l liabil ity. Additional 3. Object, type and delivery of condit ions w ill be provided in the the contracts: The London 2012 invitat ion to tender, w hich will be Olympic St adium (the Olympic Stadium) Is an 80,000 seat stadium, available in the online deal room. w hich is situated in the Olympic Park in the London Borough of Newham. Post-201 2 Ga mes, the Olympic Stadium will be t ransformed into a 60,000 seat multipurpose stadium (the Stadium). Interested parties are invited to bid for a concession to provide sporting. entertainment and/or cultural content in the Stadium after the 201 2 Olympic and Paralympic Gam es.
8. Pre-qualification Requirements and Evaluation Criteria: The invitation to tender w ill contain inform ation regard ing the prequalificat ion requirem ents and the eva luation criteria.
4. The Competition: OPLC is providing a competit ion information and clarification day (including an outline o f the tender process) for a m aximum of two representatives per interested party at 10 a.m . on 6th January, 2011 in l ondon. Subject to interest ed parties signing a confidentiality agreem ent and providing
CLOSING DATI TO REGISTER YOUR INTEREST AS AN INTERESTED PARTY: 30TH JANUARY 2012
9. Administrative information: The invitat ion to tender will contain all administrative information and all the documentation shall be in English.
Please note that this is not the deadline for submission of bids. The deadline for submission of bids will be set out in the invitation to tender. The Economist December 31st 2011
63
Also in this section 64 lS_olar_p_ow.eL.s thi rd_way 64 'rite d_urable_Comet_Loy_ejo_y1
For daily analysis and debate on science and technology, visit Economist.comfscience
Flu research and biological warfare
A deadly balance NEW YORK
When does research enhance security, and when does it diminish it?
EMPTING fate is never wise; tempting a flu pandemic is downright foolish. Yet it is impossible for scientists to understand influenza or create vaccines without at least some risk. The question, then, is what level of risk is acceptable. On December 20th the American authorities said they had asked the world's leading scientific journals to withhold research on the matter. The request, to Science (an American publication) and Nature (a British one), is unusual. But so is the research in question. Two separate teams, led by Yoshihiro Kawaoka at the University of Wisconsin-Madison, and Ron Fouchier at Erasmus Medical Centre in Rotterdam, have tinkered with H5N1, otherwise known as bird flu. The resulting strains are dramatically more dangerous. According to the World Health Organisation, bird flu has killed more than 330 people since 2003. That is a staggering 6o% of the 570-odd cases recorded worldwide in that period. (The actual fatality rate may be lower since non-fatal cases of bird flu are more likely to escape detection than fatal ones.) The "Spanish flu" of 1918-20, which infected 500m people, claimed the lives of no more than one in five sufferers. H5N1's toll would certainly have been greater than hundreds had it not been for an important limitation: unlike its Spanish sister it is not easily transmitted to humans, or between them. But if the virus ever evolved to hop nimbly from person to per-
T
son it too could wreak a pandemic. That evolution has now occurred, helped by the researchers in Madison and Rotterdam. Each team engineered the virus so that it could be transmitted through the air from ferret to ferret (ferrets, surprisingly, are good proxies for humans). Details of both studies are still under wraps but a paper Dr Fouchier presented in September at a virology conference in Malta outlined his team's approach. According to reports from the meeting, his team first tried to fiddle with the flu genome directly, introducing bespoke changes to it in an effort to create an airborne strain. When this did not work, he resorted to the low-tech method of passing the virus- with a few engineered mutations that had not themselves done the trick-from one ferret to another a number of times, giving it an opportunity to evolve naturally. After several generations evolution worked its (in this case black) magic: the flu had gone airborne. The nasty strain had five mutations in two genes. Each of these has, notes Dr Fouchier, already been found in nature, only in separate strains and never clumped together. So far, the new, deadlier flu strains exist only in laboratories, of course. However, the fear is that if the researchers are allowed to describe the genetic changes needed to create them and the precise methods used to do this, then terrorists or other mischief-makers will be able to copy
the techniques. H5N1 could become the atom bomb of biological warfare. American officials want to prevent this from happening. After the anthrax attacks of 2001, America created the National Science Advisory Board for Biosecurity (NSABB) to advise the health department. Until now the body has exercised a light touch. For example, it did not flinch when, in 2005, researchers at the Armed Forces Institute of Pathology in Maryland reconstructed the Spanish flu virus. The work was subsequently published in Science andNatureafterthe NSABB concluded that the benefits of making it public outweighed the risks. Non-proliferation entreaty This time the NSABB has not asked the two journals to withhold the new research altogether. Rather, it has tried to strike a balance, suggesting that they publish enough information to encourage further understanding and responsible research, but not enough to allow the researchers' methods to be put to nefarious use. It also suggested that the revised manuscripts explain the potential public-health benefits of the research, as well as the safety and security measures in place at the labs where it is being conducted. Bruce Alberts, the editor of Science, which accepted Dr Fouchier's work for publication, said in a statement that the journal was pondering what to do. (Dr Kawaoka submitted his findings to Nature.) It would wait for the government to suggest how the sensitive data might be shared with scientists confidentially. Knowledge about the new virus, Dr Alberts wrote, "could well be essential for speeding the development of new treatments to combat this lethal form of influenza". Blunt censorship would be counterproductive. The NSABB might urge other scientists ~~
64 Sdence and technology ~ to
put the publication of similar studies and their presentation at scientific meetings- though not the studies themselves- on hold. Paul Keirn, a microbial geneticist at Northern Arizona University who chairs the NSABB, told Science that such a moratorium would not prevent other areas of influenza research from carrying on as usual. He said it need not last more than three months, during which scientists could weigh the risks and benefits of disseminating contentious research. There is plenty to discuss. Laurie Garrett at the Council on Foreign Relations, an American think-tank, has pointed out that some deadly viruses, such as smallpox, are kept under countless locks and keys in secure facilities. The new strains are not quite so well protected. The two labs where they reside have been rated at "biosafety level3, enhanced", like the lab where the Spanish flu was resuscitated but still a notch below the highest "level 4" required for facilities which handle the very nastiest bugs. As such, there is a slim chance that the potentially lethal strains could be unleashed not by terrorists, but by simple error. That is probably one risk not worth taking. • Solar power
Building a better suntrap A novel approach to solar power may
h elp to improve its efficiency O MAKE electricity from sunlight you can convert it directly, using a photovoltaic cell. Or you can use the heat of that sunlight to boil water, and then drive a turbine with the resulting steam. These are both established technologies. But there is, in principle, a third way: use heat directly, without steam or turbines. In this case, unlike a standard solar cell (which is sensitive to some frequencies of light, but not others), almost all of the incident energy is available for conversion. Yet unlike the boiling-water method, no messy mechanical processes are involved. Once set up, such a system could run with the minimum of attention. Unfortunately, devices that turn sunlight into heat and then into electricity in this way do not get much warmer than boiling water when they are exposed to direct, unconcentrated sunlight. The reason is that at temperatures significantly higher than this the laws of thermodynamics dictate that they shed heat as fast as they absorb it. That has proved problematic, because a direct converter of this sort needs to reach 700°C to become properly efficient, and that is impossible without using special (and expensive) parabolic mirrors
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The Economist December 31st 2011 to concentrate the incident light. Peter Bermel of the Massachusetts Institute of Technology and his colleagues, however, think they have found a way round this difficulty. As they describe in Nanoscale Research Letters, they have invented a way of concentrating the energy in the sun's rays without the need for mirrors. It is, quite literally, a suntrap. Dr Bermel's proposed trap is a thin sheet of tungsten (a heat-resistant metal) that has been processed in quite a complicated way. One surface, which faces the sun, is covered in microscopic pits. The other, which faces a specialised type of solar cell made of a material called indium gallium arsenide, is sculpted into a structure called a photonic crystal that causes it to emit infra-red radiation selectively at the frequency best absorbed by the cell. Both of these surfaces would be created by photolithography, the process used to make computer chips. It is the pits, which are three-quarters of a micron in diameter, three microns deep and arranged in a grid four-fifths of a micron apart, that do the trapping. When the device is aligned so that its pits are pointing straight at the sun, most of the incident radiation goes down them to their bottoms. Here, it is absorbed by the tungsten. As the laws of thermodynamics demand, it is then rapidly reradiated. Heat radiation coming from inside a pit, however, is more likely than not to encounter the pit's wall before it escapes into the outside world. If that happens, the whole process of absorption and reradiation starts again. The result is that the pitted tungsten becomes much hotter than a plain sheet of the metal could manage. To turn that heat into electricity, it is directed towards the solar cell by the photonic crystal. This is a regular geometric pattern etched onto the surface of the tungsten. It acts to amplify infra-red emissions at some frequencies and suppress them at others. The trick is to tune the crystal, by modi-
Let's catch some rays fying the details of pattern, so that as much of the emitted energy as possible is at the frequency most efficiently captured by indium gallium arsenide. The process of capture knocks electrons free inside the material and creates a current. The result, according to Dr Bermel's calculations, would be a system that converts 37% of sunlight into electricity. This compares with a maximum of 28% by standard silicon-based solar cells that have not had the incident light concentrated by parabolic mirrors, and 31% by those that have- a significant enhancement. The next step, of course, is to try it for real, but Dr Bermel is pretty confident his sums are correct. Tungsten, as a material, was much used in the filaments of incandescent electric light bulbs. These are going out of fashion because they convert too much of the electricity passing through them into heat, rather than light. A nice irony, then, that running the process backwards may not only give tungsten a new lease of life, but might also help solve the world's shortage of renewable energy. • Comet Lovejoy Being wrong can be more interesting than being right. In November Terry Lovejoy, an Australian amateur astronom er, spotted a comet on a collision course with the sun. Comets fall i nto the sun all the time, but the advance warning let professionals get their instruments ready to record the immolation. Yet the comet-named Lovejoy after its discoverer-confounded boffins. Despite coming within 140,000km (87 ,ooo miles) of the solar surface, well inside the corona, a cloud of million-degree plasma that envelops the sun, it survived. In the picture, taken by Dan Burbank, an astronaut aboard the International Space Station, a singed Lovejoy heads defiantly back into space.
The Economist December 31st 2011
Sdence and technology 65
Cancer research
Take five NEIVYORK
An ambitious plan for curing cancer in a businesslike way is in the works
R
ON DEPINHO is a man on a mission. Oddly, though, he does not yet know exactly what that mission is. Dr DePinho is the new president of the MD Anderson Cancer Centre in Houston, Texas. (He took over in September, having previously headed the Belfer Institute, part of Harvard's Dana-Farber Cancer Institute.) Mindful of his adopted city's most famous scientific role, as home to Mission Control for the Apollo project, he says his own rnissian is akin to a moon shot. He aims to cure not one but five varieties of cancer. What he has not yet decided is: which five? That it is possible to talk of curing even one sort of cancer is largely thanks to an outfit called the International Cancer Genome Consortium. Researchers belonging to this group, which involves 39 projects in four continents, are using high-throughput DNA -sequencing to examine 50 sorts of tumour. They are comparing the mutations in many examples of each type, to find which are common to a type (and thus, presumably, causative) and which are mere accidents. (The o N A-repair apparatus in malignant cells often goes wrong, so such accidents are common.) The consortium's work is progressing fast, and preliminary results for many tumours are already in. But such knowledge is useless unless it can be translated into treatment. That is where Dr DePinho comes in- for his career has taken him into the boardroom as well as the clinic. He is a serial entrepreneur: he helped found Aveo Pharmaceuticals, which is developing a drug to block the growth of blood vessels in tumours, Metamark Genetics, which works on diagnosing cancers, and Karyopharm Therapeutics, which is trying to regulate the passage of molecules into and out of the cell nucleus, and thus control the nucleus's activities. His aim in coming to MD Anderson, he says, is to "industrialise" other aspects of biological research in the way that genetics has been pushed forward by high-throughput sequencing. That will cost billions of dollars. Fortunately, the state of Texas- no pushover when it comes to spending taxpayers' cash-is creating a $3 billion cancer-research fund to help pay for it. Local philanthropists, including T. Boone Pickens and Ross Perot, are chipping in, too. Their model is the original Human Genome Project, during which the cost of sequencing a single genetic "letter" (a DNA base pair) fell from $10 in 1991 to ten cents in 2001- and is
now 3,000 base pairs a cent. They hope their dollars will encourage people working with what are now, essentially, craft technologies to think about how they might industrialise them. Several techniques look ripe for such industrialisation. Dr DePinho sets great store, for example, by the use of genetically modified mice (he calls them "little patients") in which mutations found in human cancers can be replicated precisely, but one at a time, to discover the shape of each piece of the jigsaw. If this process can be scaled up it will, as he puts it, allow cancer's genetic generals to be distinguished from the foot soldiers.
Cancer, you have a problem Another field that has great potential is imaging technology- in particular, a combination of positron-emission tomography (which uses radioactive sugar to measure how metabolically active tissue is) and computerised tomography (which uses x-rays to map the body's internal anatomy). Together these can show whether a treatment is reducing a cancer's energy consumption, and thus its metabolism. This gives a good indication of how well that treatment is working.
A family business Dr DePinho himself will have more duties at MD Anderson than just dealing with the five chosen tumours. The donkey work of creating the Institute for Applied Cancer Science, as the new mission control is to be known, will be done by Lynda Chin. Dr Chin, too, worked at the Belfer Institute. She is part of the International Scientific
Steering Committee of the cancer-genome project. And she is also Dr DePinho's wife. Dr Chin will be assisted by some 55 other scientists from the Belfer, who are making the journey to Texas with her and her husband. That sort of team poaching is common in investment banking but rarer in academic research. Dr DePinho refers to it, jokingly, as metastasis, since a clone of his primary creation will be taking root elsewhere in the country. As to which five cancers to attack, that decision will be made by the middle of 2012. A crucial consideration will be how likely it looks that research into the tumour in question could get rapidly to the "proof of concept" stage- the point at which it could be taken forward by a business that relied on commercial sources of capital, rather than on the sorts of grants that usually propel academic research. At that moment a new firm might be spun out of the institute, or a deal might be done with an established pharmaceutical firm, to try to get a new drug developed. In recent years many big drug companies have gutted their research departments. This is partly because those departments have failed to come up with new "blockbuster" drugs of the sort that created Big Pharma in the first place, and partly because the big firms' bosses had hoped that smaller biotechnology companies, of the sort Dr DePinho has helped set up, would do the hard work of drug discovery instead, and then let themselves be bought by the big firms . Unfortunately, it hasn't quite worked out like that. The output of the biotech firms has been a trickle, rather than a torrent. They have been one of the worst-performing parts of the private-equity market since 2007, according to Dr DePinho. He hopes to change that- and in the matter of new anti-cancer drugs, the science is looking auspicious. For example, a drug caJJed vemurafenib, which was approved for use in America in August 2o:u, gives months of extra life to people with metastasising melanoma, one of the deadliest cancers. Vemurafenib is so powerful that some people call it a "Lazarus" drug, after the chap Jesus is said to have raised from the dead. Crucially for Dr DePinho's project, the development of vemurafenib was stimulated by the identification of a mutated gene often present in melanomas. He and others like him hope that the cancer-genome consortium will throw up dozens of similar genes, and that they, too, will prove tractable targets for drug development. Of course, if Dr DePinho had a penny for every time a "cure for cancer" headline proved premature, he wouldn't need munificent donors. But if his bets on the science and on adopting business methods pay off, the drug industry and millions of patients will benefit. That would be one benign sort of metastasis. •
The Economist December 31st 2011
Books and arts 67
~ of traits. Supposedly resulting from
abnormal antenatal exposure to hormones, this cluster includes maleness, homosexuality, left-handedness, poor visual-spatial skills, immune disorders, and perhaps also language-learning talent. Brain areas are also keyed to certain skills. The left Heschl's gyrus is bigger than average in professional phoneticians. People who learn new vocabulary quickly show more activity in the hippocampus. Krebs's brain, preserved in slices at a laboratory in Dusseldorf, shows various unusual features. The discovery of the FOXP2 brain gene, a mutation of which can cause language loss, was met with considerable excitement when it was announced over a decade ago. But the reality is that many parts of the brain work together to produce speech and no single gene, region of the brain or theory can explain successful language-learning. In the end Mr Erard is happy simply to meet interesting characters, tell fascinating tales and round up the research without trying to judge which is the best work. At the end of his story, however, he finds a surprise in Mezzofanti's archive: flashcards. Stacks of them, in Georgian, Hungarian, Arabic, Algonquin and nine other tongues. The world's most celebrated hyperpolyglot relied on the same tools given to first-year language-learners today. The conclusion? Hyperpolyglots may begin with talent, but they aren't geniuses. They simply enjoy tasks that are drudgery to normal people. The talent and enjoyment drive a virtuous cycle that pushes them to feats others simply shake their heads at, admiration mixed with no small amount of incomprehension. • Algeria and France
War by any other name Algeria: France's Undeclared War. By Martin
Evans. Oxford University Press; 457 pages; $35 and £20 N 2006 Franc;ois Hollande, now the Socialist Party's candidate in France's forthcoming presidential election, declared "in the name of the Socialist Party" that the Section Franc;aise de I'Internationale Ouvriere, the forerunner of his party, "lost its soul in the Algerian War. It had its justifications but we still owe an apology to the Algerian people." Indeed so. It was a Socialist prime minister, Guy Mollet, who in 1956 ordered a campaign of "pacification" against Algeria's nationalists. Opposed to colonialism, Mollet may well have acted out of good intentions, but "pacification" amounted to
I
Outstaying his welcome
repression and countless acts of brutality and torture by the French army. But Martin Evans, a British academic, is too good an historian to present a one-sided story of its quest for independence. The insurgent Front de Liberation Nationale (FLN) was ruthless in its determination to be the sole representative of Algerian nationalism, willing to kill and maim not just French settlers but also the rival nationalists of Messali H adj's Mouvement National Algerien. The cruelty was exercised even within the FLN's own ranks, witness the cold-blooded strangling of Abane Ramdane or the assassination of Mohamed Khider, another of its leading figures. Mr Evans's title reminds the reader that the Algerian conflict was officially only a "police operation". Recognition that it was a full-scale war, France's worst conflict since the second world war, came only with a vote by the National Assembly in 1999, some 37 years after Algeria's independence. But the thoroughness of this book is that it traces the origins of the war all the way back to the French invasion of 1830. What followed were dismal decades of discrimination, poverty and famine. In retrospect, it is hard to see how metropolitan France could ever have imagined a secure and peaceful hold on "French Algeria". Once the war erupted, there was never much hope that France's politicians, from Mollet through to Charles de Gaulle, could win Muslim Algerian "hearts and minds". Nor could they win the trust and support of the European settlers, the pieds noirs (literally "black feet", see picture above) whose sense of betrayal led them to side with the futile rebellion against de Gaulle by the dissident French soldiers of the OAS (Organisation de I' Armee Secrete). As Mr Evans describes, it was not just Algeria's history that militated against it
being an inseparable part of the French nation, but also the context of contemporary geopolitics. The tide of anti-colonialism after the second world war was forcing Europe's imperial powers to grant independence almost everywhere. France had already been defeated in Vietnam; Britain's prime minister Harold Macmillan talked of the "wind of change" sweeping across Africa; and America's President Eisenhower swiftly compelled France (which accused Egypt's Gamal Abdel Nasser of aiding the FLN), Britain and Israel to pull back from their 1956 seizure of the Suez Canal. The implications were recognised by de Gaulle: if France were to be a power to be reckoned with in a world now defined by the cold war, it had to rid itself of the Algerian millstone- whatever the objections of the settlers who would then have to seek refuge in France. But what of today? Mr Evans's excellent book is marred only by the occasional editing error (ORAF, the Organisation of the French Algerian Resistance, exists only as an acronym, and Mr Evans, when talking of the founding members of the European Economic Community, omits the Netherlands). It ends with a somewhat depressing postscript chapter. In France, citizens of Algerian and other north African descent are disproportionately poor and discriminated against; at times their young, caught between two different cultures, react with violence, as in the urban upheavals of 2005. As Mr Evans says: "The riots of 2005 were just one example of how the legacy of the Algerian war is still being played out." Meanwhile, in Algeria itself, the country struggles with the aftermath of another undeclared war: the brutal repression by the army of the Isla mist forces who two decades ago were about to be voted into office. •
68 Books and arts William Carlos Williams, American poet
On the outside looking in "Something Urgent I Have to Say to You": The Life and Works of William Carlos Williams. By Herbert Leibowitz. Farrar, Straus and Giroux; 496 pages; $40 and £23.99
O HIS patients in Rutherford, New Jersey, William Carlos Williams was just the local boy who had become their local doctor. And yet, as he made house calls, administered vaccinations or listened to their complaints, he heard not just what they said, but how they said it. A doctor but also a poet, Williams spent his life trying to capture the "infinite variety" of American speech, and to use it to create a uniquely American form of poetic verse. It was not an easy task. As Herbert Leibowitz's new biography shows, Williams remained on the periphery of 2oth-century literature as he spent a lifetime in the "grey-brown landscapes" of suburbia. He was disgruntled, with a severe dislike of many of his fellow poets, especially T.S. Eliot (Williams was both admiring and disdainful of "The Waste Land"), but his poems are now held up as some of the most daring examples of modern American poetry, and he was posthumously awarded the Pulitzer prize in 1963. During his lifetime, however, Williams was "lil Bill" to his bigger, more successful friend Ezra Pound, who laughed at his insistence on staying in Rutherford. The son of immigrants who never naturalised, Wil-
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The Economist December 31st 2011
Iiams's dedication to America did not flag, though it was a country that often disappointed him. Peopling his poems with "nurses and prostitutes, policemen andreligious fanatics, farmers and fish peddlers, drunkards ...blues singers and barbers", Williams wanted to pin down the whole messy country with his short, punchy lines of poetry. Sometimes he succeeded, as when he describes the euphoric crowds at a baseball game, or when he catches a glimpse of "A big young bareheaded woman/in an apron" on the pavement, bending down to remove a nail from her shoe. With the eyes of a doctor, he recorded the quotidian and the overlooked. He coined the maxim "no ideas but in things". To his critics, the saying exposed him as an anti-intellectual, or as a poet who could only create "American speech barking at song." Mr Leibowitz, a New York literary editor, is keen to defend Williams against these charges, and focuses instead on the radical aspects of Williams's work. Banned in 1952 from being poetry consultant to the Library of Congress for his leftleaning views, Williams wrote poems in which the Rosenbergs appeared next to Geoffrey Chaucer. As a young doctor just starting out, he had mainly served the Italian, Greek and Polish communities around Rutherford, or attended to bruised prostitutes or addicts at the French Hospital of New York. As an elderly man with a respected practice, he still preferred the company of the socially marginalised: "I have known the unsuccessful, [and think them) far better persons than their more lucky brothers". However, in emphasising this side of Williams Mr Leibowitz skates over the less
George Whitman/ Christopher Hitchens Two men of letters to remember upon a winter's night are George Whitman (pictured left) , who died on December 14th, and Christopher Hitchens, who died the following day. Both men lived for words and for writing, Whitman as a patron of impecunious poets and owner of a landmark Paris bookshop, Shakespeare and Company, and Hitchens as a magazine columnist, late-night bard and scourge of hypocrites and windbags everywhere. We have published obituaries of both on our website.
palatable aspects of his subject's character. A serial philanderer who publicly described his wife as "no Venus de Milo", his poetry is occasionally voyeuristic and antagonistic towards women: "What I got out of women/was difficult/to assess." Bitter from his lack of success in America or abroad, and obsessed with what he saw as the "European virus" in poetry, the Williams of this biography is not easy company. His poems, composed of short lines like "be a song- made of/particulars", often resist Mr Leibowitz's lengthy analysis. Just as he preferred the quiet meadowlands around Rutherford to the glamour of literary New York, so too Williams manages to evade his biographer's gaze. Like a figure in one of his poems, he remains on the sidelines, looking in. • 19th-century British politics
Third man John Bright: Statesman, Orator, Agitator. By Bill Cash. I. B. Tauris; 328 pages; $55 and £25
ILL CASH, a Conservative British backbench politician, has written a book about another backbench politician, who also happens to be an ancestor. Mr Cash frets that his great-grandfather's cousin has been forgotten, but he hasn't really. No historian doubts the importance of John Bright; it is just that he has slipped out of the popular consciousness. So, for the layman, who was he? The very question, Mr Cash tells us, would have flabbergasted anyone in the 19th century. In 1878 Punch published a series of cartoons of the three Britons whom they deemed to be the greatest statesmen of the age- Benjamin Disraeli, William Gladstone and Bright. Born in 1811 and with a political career spanning nearly so years as a member of parliament for Durham, Manchester and Birmingham, Bright would be "the one contemporary statesman whose fame and accomplishments transcended the age," according to Walter Bagehot, this newspaper's editor from l86o-n A biography by G.M. nevelyan, which came out in 1913, described him as"a rare example of the hero as politician". A Quaker born in Rochdale, Bright made his name campaigning for the repeal of the protectionist Corn Laws, distinguishing himself, as Karl Marx testified, as "one of the most gifted orators that England has ever produced". He was inspiring as well as courageous, and his passion for free trade was allied to his passion for democracy. He crusaded against monopoly, aristocracy, slavery and more. It was Bright ~~
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The Economist December 31st 2011 ~ who
said that "England is the mother of Parliaments", a phrase that has passed into idiom. He fought tirelessly for the Reform Act of 1867 which gave the vote to workingclass men. A radical as well as a nonconformist, Bright was vocal in his opposition to the Crimean war, which he believed to be un-Christian, a stance that eventually lost him his parliamentary seat. Whether you rated him a hero or a villain depended on your point of view. His pugnacity fascinated and repelled people in equal measure. Early tales include a furious quarrel with a local Anglican vicar, both of them hollering from tombstones in the parish churchyard. He was, says Mr Cash, "an independent Radical by principle, with a persistent strain of innate conservatism. He was in the Liberal Party as it evolved but not always of, or even with, the Liberal Party". His relationships with Gladstone and Disraeli were complex. He loathed Lord Palmerston, a former prime minister, and the feeling was mutual. Mr Cash is a lawyer by training and a politician by profession. He has a sharp
Books and arts 69 eye for detail and he presents a strong case. What he does not explain is how Bright slipped out of view. His own interest, he tells the reader, has increased "in inverse proportion to the decline in the vibrancy, accountability and sovereignty of our Parliament". But the underlying lament, that Bright has been censored out by fashion "as people became cynical of moral and political certainties" is too marbled with nostalgia to be believable. Bright was a political force, but he never held high office, so he was rather like a midfielder who forever sets up the strikers: assists don't count as much as goals. A fullscale revival of his reputation would have to rouse the reader's imagination. Mr Cash quotes Bright's dictum that "my life is in my speeches", many of which are rhetorical masterpieces; but the reader wants more of the man, more of the life outside the speeches. Bright believed that biographies "are soon forgotten, and of no influence in the future". Historians will enjoy this fine political portrait, but it is unlikely to make Bright famous again. •
20th-century women
Dandy dames
Rebecca West and Dorothy Thompson were remarkable- by any standards
OROTHY THOMPSON and Rebecca West were career women long before the term had been invented. In the 1930s, when Thompson and West were making their mark as established professionals, a Gallup poll recorded that 82% of the American population believed women "should not have paying jobs outside the home" if their husbands were employed. Yet both women worked consistently from their early 20s in occupations that were almost entirely male-dominated- Thompson as a foreign correspondent and then a political commentator; West (pictured right) as a literary critic, lauded novelist, historian and travel writer. Susan Hertog's biography, an accomplished synthesis of these two lives and the remarkable parallels between them, is also a history of the 2oth century, a study of female emancipation and literary culture, and an acute analysis of dysfunctiona! family life. The most striking similarity between Thompson and West is their seemingly in-
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Dangerous Ambition: Rebecca West and Dorothy Thompson, New Women in Search of Love and Power. By Susan Hertog. Ballantine Books; 493 pages; $30 and £19.99
nate self-belief and fearlessness. On her 27th birthday in 1920 the American-born Thompson sailed for England. With no contacts but with portfolio in hand, her goal was to gain credentials as a freelance reporter and make her way across Europe to witness the aftermath of the revolution in Russia. By1927 she was living in Berlin as the first female head of a news bureau in Europe. West, the daughter of an AngloIrish journalist who abandoned the family when she was eight, was a reviewer and essayist by the time she was 19, when "regardless of reputation" she published cutting critiques of established writers such as Arnold Bennett and George Bernard Shaw. West wrote consistently until her death at 90 im983, and was in the enviable position of having Harold Ross, the editor of the New Yorker, write to her, pleading: "Please write any story you want for us, fact or fiction." In 1941 West published her best-known book, "Black Lamb and Grey Falcon", a history of the Balkans and a meditation on the rise of Nazism. Ms Hertog's style is frequently novelistic, which is less irritating than might be anticipated. In her description of Thompson's life in Berlin, for example, Ms Hertog assumes the voice of an omniscient narrator: "As Dorothy walked to the small office
she kept on Motzstrasse, she remembered the first time she had met Rebecca ... " Her writing style can be fanciful, as when Ms Hertog imagines the colour of Thompson's dress and how her hair might have been styled for her un-photographed first wedding. But it works well in the passages where the author attempts to draw out the romantic and family dramas which so defined the lives of both women. When she was 21 West had an illegitimate son with H.G. Wells, 26 years her senior and then on his second wife, before marrying Henry Andrews, a banker, who was frequently unfaithful and suffered early from a form of dementia. Thompson was married three times and also had a son, with Sinclair Lewis, her second husband and winner of the Nobel prize in literature. Resentful of their mothers after lonely childhoods, both sons married young before abandoning their first wives, pursued unrealistic ambitions, and, when they proved unsuccessful, demanded lifelong financial assistance. The danger of the book's title refers to the effects of their ambitions to be, as Thompson put it, "something no other woman has been yet". Both women turned out to be poor parents, even if they came up to roughly the standard expected of working fathers of the time; both chose work and travel over their child, sent them away to school and placated them with lavish gifts. Ms Hertog poignantly renders the conflict between maternal instinct and the desire for realisation of ambition, backed by a fear of diminished "intellectual lustre" and of becoming lost in a "cocoon of domesticity". Thompson and West undoubtedly chose work over family, but in doing so helped to break down barriers, not only for women journalists but for all working women. •
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