Rise of the creator economy

Spam, scam: organised crime online

Why Warren Buffett should let go
Time to recognise Somaliland
MAY 8TH–14TH 2021

Govcoins
The digital currencies that will transform finance

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 TOWARDS A DREAM
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louisvuitton.com
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 Contents The Economist May 8th 2021 5

The world this week Europe

8 A summary of political 21 Spain’s indignados
and business news 22 Germany’s climate goals
Leaders 23 Ireland and Brexit
11 The rise of e­money 23 Terrorists in France
Why govcoins matter 24 Alcohol­free Turkey
12 Gun laws in America 25 Charlemagne The
Bearing harms anti­Orban
12 Warren Buffett
Time’s up Britain
13 Somaliland 26 London v the
A state of one’s own government
14 German climate policy 27 Body­part shortage
On the cover
Negative thinking 28 Fish fight with France
Government­run virtual
currencies are coming. They Letters
are a giant risk that is worth 16 On politics and business,
taking: leader, page 11. Imagine Saudi Arabia, crowd­ Middle East & Africa
there were no banks—it is sourcing, the draft,
possible, says Alice Fulwood, 29 Somaliland at 30
football
see our special report, after 30 Cleaning cooking
page 40. Some expect a Briefing 31 Making vaccines in Africa
revolution in the yuan’s status 32 Free to quit in Qatar
18 The creator economy
abroad and its role at home.
Serfing the web 32 A critical fight in Yemen
Don’t count on it, page 61
33 How autocrats pick their
Special report: opponents
Rise of the creator economy
The future of banking
Social­media platforms used to
get most of their content free. Fewer banks—or none United States
Now creators command a price, at all?
35 The firearms free­for­all
and online power is shifting: After page 40
36 Trump and Facebook
briefing, page 18
37 Home­ownership booms
Organised crime online 37 Waiting around for stuff
A decentralised dark economy 38 Trade in tech with China
makes cyber­crooks more
39 Unsolved murders
effective and harder to catch,
page 53 40 Lexington The founding
fish
Why Warren Buffett should let
go The Oracle of Omaha should The Americas
step aside at Berkshire 41 El Salvador
Hathaway: leader, page 12, and 42 Mexico City’s metro
analysis, page 55
Free exchange Escape 42 Protests in Colombia
Time to recognise Somaliland from the city: a new age of 43 Bello Fishy legal problems
After 30 years of running itself, suburbanisation could be
Somaliland deserves dawning, page 66
international recognition: leader,
page 13, and analysis, page 29

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 6 Contents The Economist May 8th 2021

Asia Finance & economics

44 Politics and covid-19 61 The digital yuan
in India 62 Foreign banks in America
45 Mumbai v Delhi 63 Buttonwood Dr Copper
46 Home decor in 64 Cleaning up Greek banks
South Korea
64 Women and wealth
47 Charity in the Philippines
65 The economics of prisons
47 Bangladesh’s water woes
66 Free exchange Escape
48 Banyan Australia’s China from the city
debate
Science & technology
China
67 Back-ups for gps
49 The new scold war
68 An early African burial
50 A boom in plastic surgery
69 The science of roadkills
52 Chaguan Resistance to
69 Diagnosing depression
China is not futile
70 How to knit a road

Books & arts

International
71 Dostoyevsky on stage
53 The industrialisation of
72 Rachel Cusk’s new novel
cyber-crime
73 Dürer’s imagination
73 The causes of disaster
74 Johnson Hard languages

Economic & financial indicators

Business
76 Statistics on 42 economies
55 Bumbling Berkshire
57 Bartleby Craftsmanship Graphic detail
58 Waiving vaccine patents 77 Victorian-era pollution still shapes English cities
58 Ageing consumers
59 Internet gatekeepers Obituary
60 Schumpeter pe turns pc 78 Michael Collins, the man who didn’t walk on the Moon

Volume 439 Number 9244

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009
 8
The world this week Politics The Economist May 8th 2021

The European Commission Several companies, including

said it would put its efforts to American Airlines and Micro­ Coronavirus briefs
secure the ratification of an soft, urged the Texas legisla­ To 6am GMT May 6th 2021
investment deal with China on ture to drop a bill that critics
Weekly confirmed cases by area, m
hold. The European Parliament say would make it harder for
2.5
is refusing to consider rat­ Texans to vote. Businesses are India 2.0
ification until China lifts becoming more vocal in their
Western Europe 1.5
sanctions on several of its support for voting rights as a
members, after the eu im­ number of Republican­leaning 1.0
posed sanctions on China for states consider similar mea­ Other 0.5
abuses against the Uyghurs. sures. Florida’s legislature US 0
recently passed one such bill. 2020 2021
Protests in Colombia raged on, In a nasty row over post­Brexit
Vaccination doses
despite the scrapping of an fishing rights, France threat­ Joshua Wong, a democracy % of adults with
unpopular tax reform that had ened to cut off the electricity activist in Hong Kong, was Total ’000 1st dose 2nd
sparked them and the resigna­ supply to the island of Jersey, a sentenced to another ten Israel 10,476 97 91
tion of the finance minister British dependency that lies months in prison, this time for Bhutan 481 94 0
who championed it. The gov­ close to the French coast. UAE 10,779 82 52
taking part in an annual vigil
Maldives 413 73 28
ernment responded harshly; Britain sent two navy vessels to marking the Tiananmen
Malta 352 67 31
the protesters became increas­ Jersey to monitor a protest by a Square massacre. The vigil was Britain 50,683 67 30
ingly violent in turn. At least flotilla of French fishing boats. banned last year, ostensibly United States 247,769 59 40
24 people have died and more because of covid­19. Mr Wong Chile 15,133 58 49
than 800 civilians and police The deadline for Binyamin is already serving time for Bahrain 1,302 57 43
officers have been injured. Netanyahu, Israel’s prime separate charges. Three others Mongolia 1,661 55 26
minister, to form a new gov­ were also sentenced. The vigil Sources: Johns Hopkins University CSSE;
El Salvador’s president, Nayib ernment passed, putting his is banned again this year. Our World in Data; United Nations
Bukele, once again displayed political future in doubt. Presi­
his authoritarian tendencies. dent Reuven Rivlin asked Yair Results from elections in four The entire Indian delegation
The legislative assembly, Lapid, Mr Netanyahu’s rival, to Indian states revealed that to the g7 summit in London
which his party controls, try to assemble a coalition. voters are turning away from went into self­isolation when
sacked five Supreme Court the ruling Bharatiya Janata some of their team tested
judges and the attorney­gener­ Ace Magashule, the secretary­ Party. Though it won Assam, in positive for covid­19. The
al. Their replacements have general of South Africa’s the north­east, the party per­ meeting marked a return to
links to Mr Bukele, who now ruling party, was suspended formed abysmally in the im­ face­to­face diplomacy, albeit
controls all three branches of from it while he answers char­ portant state of West Bengal, with distancing measures in
the state. American officials ges of graft. Mr Magashule was where Narendra Modi, the place. The Indian Premier
complained, but softly. Presi­ the focus of resistance to prime minister, had cam­ League, the world’s biggest
dent Joe Biden’s administra­ President Cyril Ramaphosa, paigned extensively. The party cricket tournament, was
tion wants Central American who has pledged to fight what also lost its only seat in Kerala. suspended after several play­
governments to help it curb he called “corrosive corrup­ ers tested positive.
migration to the United States. tion” within the party. India’s covid crisis continued
to worsen. The country regis­ Canada approved the Pfizer
For the first time since 2005 The Democratic Republic of tered its highest daily number jab for 12­15 year olds, the first
members of the opposition in Congo is imposing military of new infections, over country to endorse a vaccine
Venezuela were allowed onto rule on two conflict­ridden 412,000, on May 5th. Half the for children under 16. Amer­
the National Electoral Council. provinces in the east following world’s daily reported cases ica is ready to do the same.
Nicolás Maduro, the dictator, a surge in attacks by militias. now come from India, as well
wants to persuade the United Governors and provincial as a quarter of deaths. This month Connecticut, New
States that his regime no lon­ assemblies were suspended Jersey, New York and Penn­
ger deserves the sanctions for 30 days and replaced by Cases are also rising across sylvania will end most limits
imposed on it. military governors with exten­ South-East Asia, with spikes on the number of people
sive powers. in Cambodia, Laos, Malaysia allowed in shops, offices and
An election for the regional and Thailand, as well as a so on. Rules on face masks
government of Madrid was a Joe Biden raised the cap on the handful of locally transmitted and distancing will remain.
blow for Spain's prime min­ number of refugees allowed cases in Singapore, causing the
ister, Pedro Sánchez. His So­ into America to 62,500 for the city to restrict gatherings. As an incentive to increase the
cialist party slumped to third fiscal year ending September state’s vaccination rate, New
place as the conservative Peo­ 30th. The president had been Teodoro “Teddy Boy” Locsin, Jersey is offering a free beer
ple's Party triumphed. The chided by his fellow Demo­ the Philippines' foreign min­ to anyone over 21 who gets a
result was even worse for Pablo crats when last month he left ister, issued a tweet asking first jab in May.
Iglesias, the national leader of the cap at 15,000, a historically China to “get the fuck out” of
the radical­left Podemos; he low bar introduced by Donald waters claimed by both coun­
had resigned as a deputy prime Trump. Mr Biden said he tries. Mr Locsin later apol­ → For our latest coverage of the
minister to run in the election, would lift the cap again next ogised, after his equally plain­ virus please visit economist.com/
but his party came fifth. The year. Between October 1st 2020 spoken president, Rodrigo coronavirus or download the
pony­tailed Mr Iglesias said he and March 31st this year, only Duterte, said that there was no Economist app.
would quit politics. 2,050 refugees were admitted. need to be rude.

009
 The world this week Business The Economist May 8th 2021 9

After 56 years at the helm of highlights growing investor which is technically a reces­ app store last year after the
Berkshire Hathaway, Warren frustration at the high rewards sion. Germany’s economy was game’s owner, Epic Games,
Buffett named Greg Abel to some blue­chip companies 1.7% smaller in the quarter. tried to offer an alternative
succeed him as chief exec­ dished out to executives dur­ payment system for enhanced
utive. It is not clear when the ing the pandemic. at&t said features. The case comes soon
90­year­old Mr Buffett will less than half its shareholders US trade deficit after Apple was accused by the
Goods and services, $bn
actually vacate the job. Berk­ approved a compensation plan European Commission of
0
shire’s share price underper­ for executives. Similar fights distorting competition in the
formed the S&P 500 over the are brewing at Amazon, -20 market for music streaming,
past two years, but has re­ ExxonMobil and elsewhere. -40
following a complaint from
bounded in the first quarter of Spotify. The tech giant has 12
2021, pleasing its legions of -60 weeks to respond.
investors. Quarterly net in­ Loose lips -80
come came in at $11.8bn, in Janet Yellen, America’s treas­ 2019 20 21
Darktrace made a successful
part because of the soaring ury secretary, made a swift Source: US Census Bureau
stockmarket debut on the
value of investments in Apple about­turn and said she was London Stock Exchange: the
and other stockmarket stars. not recommending or predict­ America’s deficit in goods and cyber­security company’s
ing a rise in interest rates, services jumped to $74.4bn in share price rose by a third,
The announcement by Bill and after she had remarked that March, a monthly record. giving it a market value of
Melinda Gates that they are to rates would have “to rise some­ Imported goods from China £2.2bn ($3.1bn). Unconditional
divorce after 27 years of mar­ what to make sure that our soared to $48.2bn, as house­ trading began on May 6th. The
riage sent shockwaves through economy doesn’t overheat”. Ms holds flush with stimulus ipo was seen as a test of the
the world of philanthropy. The Yellen’s initial seeming sup­ cheques splashed out. demand for tech offerings in
deep pockets of the Bill and port for an increase spooked the City, after Deliveroo’s dud
Melinda Gates Foundation markets. She offered further Telenor, a telecoms company listing a month ago.
have funded many global assurances that she is not backed by the Norwegian
public­health projects, often worried about persistent in­ government, wrote off its
reshaping policy discussions. flation, but does think prices entire investment in Myan­ A blast from the past
It invested early in vaccines for will rise in the short term as mar, where it is one of the Still knocking around from
covid­19, working with the economic activity picks up. biggest providers of phone their early days as internet
covax initiative to send doses services. It blamed the deterio­ trailblazers, aol and Yahoo
to poor countries. America’s gdp grew by 1.6% in rating security situation since were sold by their current
the first quarter over the pre­ the military coup on February owner, Verizon, for $5bn to
The Biden administration said ceding three months, and is 1st, but said it was not leaving Apollo, a private­equity firm.
it would support an effort to virtually back to its pre­pan­ and would continue to operate Despite their outmoded image
suspend patents for covid­19 demic level. With lockdowns in the country. the pair continue to generate
vaccines, a change in policy reimposed in many places, the sizeable revenues, providing
that the head of the who euro zone’s economy shrank A trial got under way in Cali­ Verizon with $1.9bn­worth in
described as a “monumental by 0.6% in the quarter follow­ fornia to decide whether Apple the first quarter. Apollo may
moment”. Suspending patents ing a contraction of 0.7% abused its market dominance try to enhance the sports­
might help countries such as towards the end of 2020, when it booted Fortnite off its related bits of the platforms.
India and South Africa to
produce generic doses. Drug
companies are not happy. They
claim this would put more
strain on supply chains and
hand new technology to China
and Russia.

Facebook’s Oversight Board

found that its ban on Donald
Trump was right, but that the
decision should be reviewed in
six months. Mr Trump was
removed from Facebook after
the assault on Congress by his
supporters on January 6th. The
board said that Facebook’s
actions against Mr Trump
should be proportionate to
other users’ transgressions.

General Electric’s shareholders

rejected a pay package pos­
sibly worth up to $230m for
Larry Culp, the chief executive.
The vote was not binding, but

009
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 Leaders 11

The digital currencies that matter

Government-run virtual currencies are coming. They are a giant risk that is worth taking

T echnological change is upending finance. Bitcoin has

gone from being an obsession of anarchists to a $1trn asset
class that many fund managers insist belongs in any balanced
funds into the system during a crisis. Unsupervised private net­
works could become a Wild West of fraud and privacy abuses.
The other motivation is the promise of a better financial sys­
portfolio. Swarms of digital day­traders have become a force on tem. Ideally money provides a reliable store of value, a stable un­
Wall Street. PayPal has 392m users, a sign that America is catch­ it of account and an efficient means of payment. Today’s money
ing up with China’s digital­payments giants. Yet, as our special gets mixed marks. Uninsured depositors can suffer if banks fail,
report explains, the least noticed disruption on the frontier be­ bitcoin is not widely accepted and credit cards are expensive.
tween technology and finance may end up as the most revolu­ Government e­currencies would score highly, since they are
tionary: the creation of government digital currencies, which state­guaranteed and use a cheap, central payments hub.
typically aim to let people deposit funds directly with a central As a result, govcoins could cut the operating expenses of the
bank, bypassing conventional lenders. global financial industry, which amount to over $350 a year for
These “govcoins” are a new incarnation of money. They pro­ every person on Earth. That could make finance accessible for
mise to make finance work better but also to shift power from the 1.7bn people who lack bank accounts. Government digital
individuals to the state, alter geopolitics and change how capital currencies could also expand governments’ toolkits by letting
is allocated. They are to be treated with optimism, and humility. them make instant payments to citizens and cut interest rates
A decade or so ago, amid the wreckage of Lehman Brothers, below zero. For ordinary users, the appeal of a free, safe, instant,
Paul Volcker, a former head of the Federal Reserve, grumbled universal means of payment is obvious.
that banking’s last useful innovation was the atm. Since the cri­ It is this appeal, though, that creates dangers. Unconstrained,
sis, the industry has raised its game. Banks have modernised govcoins could fast become a dominant force in finance, partic­
their creaking it systems. Entrepreneurs have built an experi­ ularly if network effects made it hard for people to opt out. They
mental world of “decentralised finance”, of which bitcoin is the could destabilise banks, because if most people and firms
most famous part and which contains a riot of tokens, databases stashed their cash at the central banks, lenders would have to
and conduits that interact to varying degrees with traditional fi­ find other sources of funding with which to back their loans.
nance. Meanwhile, financial “platform” firms If retail banks were sucked dry of funding,
now have over 3bn customers who use e­wallets someone else would have to do the lending that
and payments apps. Alongside PayPal are other fuels business creation. This raises the queasy
specialists such as Ant Group, Grab and Merca­ prospect of bureaucrats influencing credit allo­
do Pago, established firms such as Visa, and Sil­ cation. In a crisis, a digital stampede of savers to
icon Valley wannabes such as Facebook. the central bank could cause bank runs.
Government or central­bank digital curren­ Once ascendant, govcoins could become
cies are the next step but they come with a twist, panopticons for the state to control citizens:
because they would centralise power in the think of instant e­fines for bad behaviour. They
state rather than spread it through networks or give it to private could alter geopolitics, too, by providing a conduit for cross­bor­
monopolies. The idea behind them is simple. Instead of holding der payments and alternatives to the dollar, the world’s reserve
an account with a retail bank, you would do so direct with a cen­ currency and a linchpin of American influence. The greenback’s
tral bank through an interface resembling apps such as Alipay or reign is based partly on America’s open capital markets and
Venmo. Rather than writing cheques or paying online with a property rights, which China cannot rival. But it also relies on
card, you could use the central bank’s cheap plumbing. And your old payments systems, invoicing conventions and inertia—
money would be guaranteed by the full faith of the state, not a making it ripe for disruption. Small countries fear that, instead
fallible bank. Want to buy a pizza or help a broke sibling? No of using local money, people might switch to foreign e­curren­
need to deal with Citigroup’s call centre or pay Mastercard’s fees: cies, causing chaos at home.
the Bank of England and the Fed are at your service.
This metamorphosis of central banks from the aristocrats of New money, new problems
finance to its labourers sounds far­fetched, but it is under way. Such a vast spectrum of opportunities and dangers is daunting.
Over 50 monetary authorities, representing the bulk of global It is revealing that China’s autocrats, who value control above all
gdp, are exploring digital currencies. The Bahamas has issued else, are limiting the size of the e­yuan and clamping down on
digital money. China has rolled out its e­yuan pilot to over private platforms such as Ant. Open societies should also pro­
500,000 people (see Finance section). The eu wants a virtual eu­ ceed cautiously by, say, capping digital­currency accounts.
ro by 2025, Britain has launched a task­force, and America, the Governments and financial firms need to prepare for a long­
world’s financial hegemon, is building a hypothetical e­dollar. term shift in how money works, as momentous as the leap to
One motivation for governments and central banks is a fear metallic coins or payment cards. That means beefing up privacy
of losing control. Today central banks harness the banking sys­ laws, reforming how central banks are run and preparing retail
tem to amplify monetary policy. If payments, deposits and loans banks for a more peripheral role. State digital currencies are the
migrate from banks into privately run digital realms, central next great experiment in finance, and they promise to be a lot
banks will struggle to manage the economic cycle and inject more consequential than the humble atm. n

009
 12 Leaders The Economist May 8th 2021

Gun laws in America

Bearing harms
Permitless-carry gun laws are misguided and should be scrapped

E very american state requires you to have a licence to drive a

car, hunt or become a barber. Yet by the end of this year at
least 20 states will allow you to carry a handgun in public with­
quired to pass tests before they can legally operate a car, so it
makes sense for people to learn how to use a lethal weapon and
impose restrictions on when, where and how they can carry
out a permit. So far in 2021 five have already passed “permitless guns around. In most places where permitless carry is being
carry” laws, and five more, including Texas and Louisiana, are considered, police forces have spoken out against it, because it
considering them. If these became law, around a third of Amer­ would make their jobs harder and more dangerous.
icans would live in states where it was legal to carry guns around The nra has spent the past 20 years successfully loosening
without any need for a licence or training. gun laws. The latest wave of deregulation was “shall issue” re­
Anyone who considers the 181 mass shootings that have taken quirements for gun licences, giving officials less discretion
place in America since January, or the recent spike in violent about when to withhold them. A study of these laws by research­
crime, would be forgiven for wondering why some states want ers at Stanford found that they resulted in a 13­15% increase in
fewer restrictions on guns, rather than more. The pro­gun lobby, violent crime in the decade after they came into force. By the
including the National Rifle Association (nra), argues that hav­ same logic, permitless carry would also probably cost lives.
ing more armed civilians will help boost public Permitless carry is also a misreading of his­
safety, making it more likely that “good guys” tory. Romanticising America as a country that
with guns can intercept “bad guys” with guns. intended no restrictions on guns is incorrect. In
With the help of Republican state legislators, the 19th century, most Southern states had
they are advancing an interpretation of the Sec­ stricter gun laws than they do today. Even in
ond Amendment which imagines that Ameri­ Wild West settlements like Tombstone, Arizo­
ca’s founders intended no restrictions on guns na, newcomers had to leave their guns on the
or gun ownership whatsoever. Backers of per­ outskirts of town or register them with the
mitless carry call it “constitutional carry” to sheriff. A century ago the nra backed permit­
make it seem legitimate and to appear to give it a pedigree. ting laws as a way to promote responsible gun ownership and
Do not be fooled. Permitless carry is a radical departure from helped draft the country’s first federal gun­control laws in the
tradition and should be opposed. One reason is that the gains to 1930s. By arguing for permitless carry, it is not faithfully adher­
gun owners are trivial. In most of the states considering permit­ ing to the past but drifting further towards an extreme.
less carry, it is already possible to be armed with a handgun con­ America is the world leader in gun­ownership, with about six
cealed in public if you have a licence (see United States section). times the rate of France and Germany, and more than double
Obtaining a licence is hardly onerous, given what guns are war­torn Yemen, which comes second. The rate of violent gun­
capable of. Applicants are often required to do training and to deaths is perhaps 100 times higher than in Britain. Most of
pass a shooting test. Searches help screen out people who America’s peers impose stricter laws—even gun­friendly Swit­
should not be trusted with a gun, such as those who have com­ zerland and Canada. Because of the near­permanent deadlock in
mitted violent crimes or who have a history of mental illness. Congress, the federal government will not pass sensible gun re­
Doing away with these conditions is not in the public inter­ forms. It is up to the states to take responsibility for the welfare
est. Just as communities are made safer by drivers being re­ of their citizens. Permitless carry will only do them harm. n

Warren Buffett

Time’s up
The Oracle of Omaha should look to the future and step aside at Berkshire Hathaway

A t 90, warren buffett continues to lead Berkshire Hatha­

way, wearing the three hats of chief executive, chairman and
chief investment officer. For years, the question of whom the
The cack­handed way in which the succession plan became
public fits a bigger pattern. Berkshire is a huge public company,
with a stockmarket value of $645bn and an army of devoted re­
feted investor would anoint as his successor to run the giant tail investors. It is, though, structured and run in much the way
conglomerate has been the subject of boardroom gossip. The it was when Mr Buffett took it over in the 1960s. He has never
world now knows the answer, though only because of a slip of hidden his reluctance to retire. He once joked that he’ll step
the tongue by Mr Buffett’s 97­year­old right­hand man, Charlie down five years after he dies. However, Berkshire needs to make
Munger, at the annual shareholders’ meeting on May 1st (see changes if it is to keep up with the times—and that includes hav­
Business section). That forced Mr Buffett to confirm that his heir ing a new person at the top.
apparent as chief executive is Greg Abel, 58, a trusted lieutenant That is not to denigrate Mr Buffett or his achievements. In his
who runs Berkshire’s non­insurance businesses. 56 years in charge, Berkshire’s total returns have been double

009
 The Economist May 8th 2021 Leaders 13

those of the S&P 500 index. He can claim to be the greatest value­ investor days; it does not even have a functioning investor­rela­
investor who ever lived. He has instilled an admirable trust­ tions department. The closest thing to outside scrutiny it toler­
based culture at Berkshire. The dozens of fawning books he has ates is the three hours of friendly shareholders’ questions, teed
inspired constitute their own genre of business publishing. up by a genial reporter from cnbc, at the annual conclave.
However, cracks have started to appear. One is Berkshire’s fi­ The company needs to start dealing with these deficiencies
nancial performance, which has been mediocre over the past de­ now, or face the increased risk of a drama—such as an attempt by
cade. Mr Buffett has made some costly mistakes, such as bad activist investors to break up Berkshire, or a regulatory rumble—
bets on airlines and Kraft Heinz, a consumer­goods giant. He has when Mr Buffett does eventually leave. There is no need to stoop
admitted to overpaying for acquisitions, including a big metal­ to the box­ticking corporate conformity that he so loathes, an
parts­maker that later wrote off $11bn. Were it not for a valuable aversion reflected in his public criticism of the metrics and
stake in Apple, the bottom line would have looked limper still. questionnaires wielded by esg campaigners.
Suspicion is growing that Mr Buffett has lost his magic touch in
allocating capital, perhaps because, like other star fund manag­ Get the job done, Warren
ers, he is too big to outperform the market by much. New blood and greater openness would be a good start. Naming
Berkshire’s governance needs rethinking, too. For all the a successor is a first step. The next should be to replenish the
autonomy its divisions enjoy, Mr Buffett still has to sign off on board with outside appointments. Investors must get the infor­
the big decisions. He has special shares with greatly enhanced mation they need to make informed decisions, including analy­
voting power. The board is stacked with Friends of Warren; five sis of where the firm is creating value, and the tax and other syn­
of its 14 members are 89 or over. Berkshire’s failure to write or ergies that justify keeping the conglomerate intact.
disclose its policies on investor priorities such as climate risk The biggest question of all is when Mr Buffett should go. He
and diversity irks some shareholders, including big institutions may want to die at his desk, but the longer he stays, the more he
like BlackRock. When investors called Buffett­style governance risks becoming a liability. He said at this year’s agm that bad
“unique” they used to mean it as a compliment. No longer. leaders are the biggest risk companies face. Good leaders who
The company’s lousy disclosure looks out of step with the stay too long are not far behind. Mr Buffett has had a wonderful
times, too. Berkshire offers little beyond mandatory filings and run. But now that the succession is out in the open, it is time to
the occasional press release. It does not hold analyst meetings or move aside and let Mr Abel fix what isn’t working. n

Somaliland

A state of one’s own

After 30 years of running itself, Somaliland deserves international recognition

S omaliland’s first stab at independence lasted less than a 4.5m people on an area bigger than Florida. It has been largely
week. Pipers of the Royal Highland Fusiliers were ordered to peaceful (see Middle East & Africa section). It controls its bor­
play the new state’s national anthem at a ceremony in Hargeisa, ders and its territory, unlike Somalia’s government, which con­
the capital, marking the end of British colonial rule in June 1960. trols little more than its capital city, and that only thanks to
On discovering that it did not have one, the bandmaster cobbled 20,000 foreign peacekeepers. Whereas Somalia has not held a
together a medley of local folk tunes, and conducted it with brio. direct election since the 1960s, Somaliland periodically votes for
A day later, however, Somaliland’s parliament passed an act of its president and lawmakers, even if polls are marred by attacks
union with Somalia, a former Italian colony to its south, and So­ on the press and take place less often than they should.
maliland officially was no more. Yet in the eyes of the world Somaliland remains part of Soma­
It was a catastrophic mistake. Within a de­ lia. For longer than most of its people have been
cade the new Somali Republic had collapsed. Its ERITREA DJIBOUTI
Gulf of Aden alive, its pleas for recognition as an indepen­
president was assassinated by his bodyguards. dent state have been ignored. The world defers
A Marxist junta seized power, led by Siad Barre, Somaliland on this to the African Union, the continental ar­
Hargeisa INDIAN
a general­turned­dictator. He abolished democ­ OCEAN
biter. It, in turn, argues that Somaliland can win
ETHIOPIA
racy and wrecked the economy by nationalising independence only with the consent of Soma­
SOMALIA
nearly everything except camel herds. He also lia, which says no.
launched a disastrous war against Ethiopia. KENYA
Mogadishu 400 km The obvious objection to recognising
When the northerners rebelled, he bombed Somaliland is that redrawing maps is perilous.
Hargeisa, killing thousands of civilians. As Somalia disintegrat­ This is especially so in Africa, where borders thoughtlessly im­
ed into clan warfare, Barre refused to negotiate, saying: “When I posed in colonial times separate countless clans and ethnic
leave Somalia, I will leave behind buildings but no people.” He groups from their kin. Untangling this mess would be so tricky
was not far off the mark. By the time he fled, in 1991, the country that a consensus long ago emerged: leave the map as it is.
had plunged into chaos from which it has yet to emerge. Once you start moving borders or creating new states for this
Somaliland unsurprisingly wanted out. Its elders agreed to or that group, others will demand their own homelands, too, and
break away from the rest of Somalia in 1991 at a “Grand Shir”, or blood will surely flow. Witness Africa’s two newest breakaway
gathering of clans, held in a small town in the desert. Since then, countries, Eritrea and South Sudan, which have become a gulag
Somaliland has become a functioning state in all but name, with state and a war zone. Were Somaliland to win independence,

009
 14 Leaders The Economist May 8th 2021

people in other bits of Somalia might try to break away, too, as imf. Statehood would help fix some of these problems.
would ethnic groups in Ethiopia, the regional power. Ideally, Somaliland’s separation should be achieved with the
For all these reasons, Somaliland’s case will not prevail soon. agreement of Somalia. For the time being this seems far­fetched.
Yet it deserves a hearing. It is not seeking to redraw borders from But Somalia should be encouraged to grant a divorce with prom­
scratch, but to revert to old ones. Some 97% of its people sup­ ises of aid and debt relief from the donors who already bankroll
ported independence in a referendum in 2001. Scottish and Cat­ its government and pay for the peacekeepers who prop it up. If,
alan nationalists can only dream of such unanimity. Most Soma­ like an abusive spouse, Somalia refuses to let go, Somaliland
lilanders have known nothing but self­rule and would never should not be held hostage. Other countries should recognise it,
consent to reintegrate with their bloody, anarchic suzerain. and international organisations should treat it like a state.
Meanwhile, denying them recognition imposes severe hu­ Were Somaliland to win formal independence again, its road
man costs. Somalilanders cannot travel freely, since few coun­ ahead would be hard. But the odds of flourishing would be much
tries accept Somaliland passports. They are poorer than they better this time. It now has not only a breezy national anthem
should be, since their government does not have the status to but also a 30­year record of reasonably successful self­rule. To
make trade deals or borrow directly from the World Bank or the recognise that is to recognise reality. n

German law and climate policy

The power of negative thinking

How to make long-term emissions pledges add up

T he climate law that the German government passed in 2019 Germany. A near­term goal, expressed as a reduction in emis­
required a cut in greenhouse­gas emissions of 55%, from sions with respect to some historical baseline, and a longer­
levels in 1990, by 2030. Climate activists saw this as insufficient. term goal expressed as a date at which they intend to reach net­
They took the government to court on the basis that, by not treat­ zero emissions, is increasingly the norm for countries seeking
ing climate action seriously enough, it was denying basic rights to take the climate seriously. These net­zero goals do not com­
to citizens of the future. mit a country to a specific level of emissions, but to developing
The court has now rejected the more ambitious aspects of “negative emissions” on a scale that will cover whatever it does
that complaint. But its ruling at the end of last month did never­ end up emitting. This makes what is actually being called for in
theless find fault with the law. Although the target for 2030 was terms of reduction between 2030 and 2050, or in some cases
not in itself deemed to be inadequate, the court decided that it 2060, impossible to assess. It thus makes the fairness of requir­
does pose a problem in the context of the law’s longer­term aspi­ ing that effort from future generations impossible to judge.
ration to “net zero” emissions in 2050. The combination of the This is a gateway to endless fudge. Notional negative emis­
two pledges seemed to allow governments to impose a greater sions are based on forestry, new agricultural practices, rewilding
share of the total burden of decarbonisation on the future. The and various technologies that suck carbon from the atmosphere
burden is all the heavier when you consider that the low­hang­ and store it underground. Because they can be invoked to make
ing apples are usually the first to be picked. up any shortfall in emission cuts, some activ­
For justice to be done, the court ruled, there Greenhouse-gas emissions ists are sceptical of including them in targets.
must be intermediate targets. It asked for de­ Germany, gigatonnes of CO2 equivalent Blanket doubt is unreasonable. Net­zero
1.2
tails of them by the end of 2022. The immediate thinking makes geophysical and economic
0.9
response, across all parties, was to talk of in­ Target 0.6
sense. Some emissions will surely prove so
creasing ambition both in the near term and the 0.3 hard to abate that it will be cheaper to develop
longer term: a 65% cut by 2030, net zero by 2045 ? 0 technologies to suck an equivalent amount of
(see Europe section). 1990 2000 10 20 30 40 50 warming potential out of the air. And if that bal­
To achieve that would presumably require a ance can be achieved globally, the concentra­
quick end to the internal­combustion engine, long a wellspring tion of greenhouse gases in the atmosphere will stabilise and
of national engineering pride—and exports. Germany’s coal the warming stop. That is why the Paris agreement of 2015 treats
phase­out would have to accelerate. And massive infrastructure net­zero as a second­half­of­the­century goal.
development would be needed to support the Achilles heel of But net­zero thinking is troublesome, even so. It allows the
the country’s renewable­energy infrastructure: its vulnerability ultimate scope of emission cuts to remain undefined and
to kalte Dunkelflaute, the cold, dark doldrums in which sun and sweeps all the uncertainties under a carpet of techno­optimism.
wind abandon the land but the hearth must stay warm. To keep governments honest, voters and activists around the
Germans—rich, green and technically adept—may find ways world need to echo the German court’s order.
to accomplish all this. Or they may not. Over the past decade They should insist that governments show how they will
they have been quite happy to close down their fleet of emis­ create negative emissions in just and robust ways—so, no affor­
sions­sparing nuclear power plants. It would be odd if a long­ estation on poor people’s land simply because you can and no
standing aversion to nuclear power should prove to be the only double counting or leaky carbon reservoirs. And they must in­
political objective the country turns out to put ahead of its com­ sist on good­faith estimates of the negative emissions govern­
mitment to climate action. ments are banking on. That way they can tell if they are feasible
However, the court’s reservation also applies well beyond and see what cuts will be needed in five, ten or 15 years’ time. n

009
 Executive focus 15

Chief Executive Officer

Malta Financial Services Authority

About the Malta Financial Services Authority How to apply or query for
The Malta Financial Services Authority (MFSA) is the single prudential and conduct regulator of financial services in further information
Malta. The MFSA regulates banking, financial institutions, payment institutions, insurance companies and insurance
intermediaries, investment services companies and collective investment schemes, securities markets, recognised
Candidates are to forward a
investment exchanges, trust management companies, company services providers, VFAs and pension schemes.
copy of their Curriculum Vitae
The Role
(C.V.) and an accompanying
You will be articulating the vision and strategy for financial services regulation and enhancing the reputation and
standing of Malta’s financial services sector. You will also be responsible for the overall performance of the Authority covering letter providing the
and the implementation of its objectives, strategy, and of policies as set by the Board of Governors. Furthermore, you
motivation for the application
will help define and establish the jurisdiction’s and MFSA’s risk appetite, through formal definition and categorisations
of risk, at gatekeeping, as well as at supervisory and enforcement levels. to ceorecruitment@mfsa.mt.

Your main responsibilities will focus on ensuring that supervisory and operational activities are undertaken in
alignment with the MFSA’s values and the established ethical principles. In addition, you will work closely with the
Board of Governors to help translate the strategy and policies into their operational elements and oversee the running
of the MFSA Executive Committee. One of your key tasks will be identifying mechanisms for establishing networks and For additional information on
relationships with other local and international regulatory authorities. the MFSA and the current
opportunity, visit
The Candidate
You are to hold prior experience working in a regulatory environment ideally with exposure to multiple areas within www.mfsa.mt/vacancies
financial services regulation. You should possess excellent communication skills and a proven track record of engaging
across segments within and outside organisations and the ability to make good decisions which are based upon
sound judgements and analysis, evidence-based and well-documented case scenarios. You should be able to
demonstrate the ability to manage and lead in a complex, corporate environment, featuring multiple stakeholders,
and layers of analyses. You should possess a solid academic background in Financial Services, Management, Closing date for applications:
Accountancy, Law and/or in other finance-related areas. 23 May 2021

Jobsplus Permit No: 144/2021

009
 16
Letters The Economist May 8th 2021

sumers overwhelmingly
A necessary relationship oppose Republican attacks on Investment in Saudi Arabia Football crazy
Business has always been fair elections. The real ques­ Referring to $106bn of foreign Well done. You scored three
entwined with politics in tion is why companies are direct investment into Saudi goals against the European
America (“The political ceo”, more accountable to the opin­ Arabia over the past decade Super League in just one issue
April 17th). Our cultural narra­ ions of the electorate than (“The prince’s big bet”, April (April 24th). Bagehot opened
tive likes to view politics as Republican lawmakers. 24th) obscures the fact that the scoring by pandering to
being separate, and for only christopher benz from 2015 to 2019 net inflows Boris Johnson’s populist
fair pursuits. But take the Portland, Oregon from fdi totalled a paltry instincts against the league,
constitution. Michael Klar­ $26bn, according to the World Lexington put the second in
man’s “The Framers’ Coup” Myths have persisted about Bank. The recently announced the net by raving on against the
sketches the urgent commer­ what Milton Friedman said in fdi target of $500bn over ten Americanisation of European
cial interests of the colonies, his famous essay in the New years appears an even steeper sports and you sealed your
which ditched freedoms that York Times. American exec­ sand dune to climb. In addi­ hat­trick by making a case
obstructed trade from the utives in fact were already well tion, the Saudi sovereign­ against the esl in “They think
preceding Articles of Confed­ aware in 1970 that generating wealth fund aims to generate it’s all over”, your business
eration. And Sam Thomas, the profits for shareholders was 1.8m direct and indirect jobs by piece. Liberalism and capital­
curator of the T.R.R. Cobb the primary objective of the 2025. The government wants ism must truly be on their way
House museum in Athens, corporate enterprise. The to do this in part by replacing out when even The Economist
Georgia, reminded us in Har- famous Dodge v Ford Motor Co expatriate workers with Saudi rages against “greed”. You
per’s recently that slavery was case in 1919 made this point jobseekers. A directive an­ romanticised a model of foot­
not always a predominately clearly. Friedman himself said nounced in April required ball that no longer exists.
moral issue. For many people very little about what exec­ shopping malls to hire only andrej beloglavec
in the 1800s it was the econom­ utives should seek to achieve Saudi citizens, a scary policy. Ljubljana, Slovenia
ics that mattered. An equally and did not mention share­ robert mogielnicki
racist north bristled at the holder value. His essay instead Resident scholar You used a typical English
business advantage of free focused on what corporate Arab Gulf States Institute eye­rolling reference to foot­
slave labour in the south, executives should not be do­ Washington, dc ball as “what Americans insist
which limited the north on ing—spending their corpora­ on calling soccer”. In fact, the
everything from international tions’ money in accordance term originated in England.
trade to westward expansion. with supposed social responsi­ Crowds and cattle Elite students in the mid­19th
Trying to put a border be­ bilities. The points he made on Francis Galton’s description of century called association
tween business and govern­ this count remain as salient an ox­weight guessing contest football “assoccer” to dis­
ment is a non­starter. It is now as they did 50 years ago. at a livestock show in 1907 is tinguish it from “rugger”,
critical we understand this if brian cheffins often misrepresented as an rugby football. The term was
we want to tackle ethical is­ Professor of corporate law early step in crowdsourcing shortened to soccer and took
sues like climate change and University of Cambridge (“Welcome to the Cosmic off in America to differentiate
racism; solving them is not the Bazaar”, April 17th). Galton did it from American football. One
preserve of government. I found much of the argument not make a case for the wis­ might ask the publishers of
martin giesbrecht made by Sherrilyn Ifill to be dom of crowds. He used the Britain’s oldest football maga­
Villa Hills, Kentucky rather disingenuous (By median estimate because it zine why they insist on calling
invitation, April 16th, digital “expresses the vox populi”, not it World Soccer.
It’s a little rich to write, after editions). Ms Ifill wants to add because it was accurate. In fact, bob goudreau
the past several decades of issues to the corporate social 40­60 of the guesses in that Cary, North Carolina
American political life, that responsibility agenda, in­ contest were more accurate
businesses are suddenly too cluding voting rights. But her than the median. Lexington compared a cold
involved in politics. The Clear­ list plainly does not embrace dave siev football night in Stoke to a
Channel Radio network organ­ opposition to the policies of Ames, Iowa corresponding baseball game
ised nationwide pro­war ral­ the Marxist groups that have in Pittsburgh. As a native of
lies before the invasion of Iraq, sprung to prominence since Pittsburgh, I should be offend­
and led a boycott of the Dixie the death of George Floyd. Nor What is it good for? ed. However, as it was not long
Chicks when the singers dared will it include the religiously Should women also be re­ ago that the Pittsburgh Pirates
say they were embarrassed by minded stand against late­ quired to register for the mil­ set a North American record
George W. Bush. Hobby Lobby term abortion, nor the consti­ itary draft in America (“Gender for any professional sports
fought to remove contracep­ tutional position of supporting war”, April 10th)? A better team of 20 consecutive losing
tion from corporate health gun rights, nor any right­of­ question is why anyone should seasons, I guess I have to go
care. Agriculture and oil firms centre position held by mil­ register? The draft was abol­ softly into the night.
co­write legislation in Con­ lions of Americans. ished in 1973, but the govern­ ed arnold
gress. That a few companies What Ms Ifill wants is a ment still spends millions of Pittsburgh
pay lip service to voting rights fallacy of companies pushing dollars each year retaining a
is notable only as pr. for a better democracy, but in database of young men of
Treason is bad for the practice for her side only. Ms fighting age. If this isn’t an Letters are welcome and should be
brand. Racism is bad for the Ifill must accept that mixing example of a useless govern­ addressed to the Editor at
The Economist, The Adelphi Building,
brand. Businesses are dis­ business with politics cuts ment programme that refuses 1-11 John Adam Street, London wc2n 6ht
tancing themselves from both ways, not just her way. to die, I don’t know what is. Email: letters@economist.com
politicians now because they luke clapson david perry More letters are available at:
Economist.com/letters
see that the majority of con­ Sydney Chicago

009
009
 18
Briefing The creator economy The Economist May 8th 2021

Serfing the web Facebook, the world’s largest social net­

work, has built a $92bn­per­year advertis­
ing business by selling space alongside
posts by its 2.8bn happily unpaid user­sup­
pliers. Twitter makes $3.4bn a year flog­
ging ads among the free editorial typed by
its 350m contributors. Being on the plat­
form can feel like “the greatest unpaid in­
Social-media platforms used to get most of their content for free. Now creators
ternship of all”, Samhita Mukhopadhyay,
command a price, and online power is shifting
an American journalist, recently tweeted.

“L ook at you down there, trying to run

for your life,” jeers Summer Solesis,
peering down at the camera. “You don’t
50 people around the world pay $10 a
month for Ms Solesis’s newsfeed, adding
up to around $5,000 a year after OnlyFans
But the serfs tilling the internet are
increasingly finding that their output can
command a price, with the effect that some
stand a chance against my giant, size 11 takes its 20% cut. She roughly doubles that of the internet’s most successful compa­
feet!” Standing over her phone, she pre­ with tips and merchandise, including un­ nies are being forced to adapt their busi­
tends to stamp on the viewer, who gets the washed socks ($10 per day worn). ness model. New platforms are offering
effect—sort of—that Ms Solesis is a “giant­ In the past decade anyone with a phone creators ways to capture the value of their
ess with dirty feet getting rid of the tiny has become a potential content creator. output for themselves, as Ms Solesis did
men infesting my house”, as one video is Cameras have got sharper, processors when she moved from Instagram to Only­
captioned. The production quality is low­ more powerful and networks faster. Apps Fans. Bloggers and tweeters are moving
fi, but viewers seem not to mind. “Unfor­ can improve even the shoddiest content. their musings to paid newsletter services
gettable sweet crushing,” swoons one fan, Instagram, launched in 2010, provided fil­ like Substack; amateur video­game makers
Sven, in the comments below. ters that made ordinary photos look cool. are selling their pixelated creations on
The pseudonymous Ms Solesis, a per­ TikTok has made it as simple to edit video. platforms like Roblox; viewers are paying
sonable 26­year­old Floridian, reinvented In April Facebook unveiled recording tools to watch experts play them on streaming
herself as an online “foot goddess” last that aim to do for amateur podcasters what services like Twitch, owned by Amazon.
March after covid­19 did for her restaurant Instagram did for bad photographers. The The upstarts are forcing incumbents
job. “My mom’s just always told me I had internet’s limitless, free distribution and such as Facebook to compensate users for
pretty feet,” she says. So “I was just like, searchability has made it possible for this the unpaid work they may not have real­
well, let’s see if the internet thinks I have output—videos, music, jokes, rants and all ised they were doing. And they are helping
pretty feet.” It did. On Instagram she gained manner of things that defy categorisa­ professional creators, who once relied on
20,000 followers. Some offered money for tion—to find an audience, however niche. middlemen, reach their audience directly.
personalised photos and videos. A few Yet apart from a few megastar “influ­ The abundance of content in the inter­
months later she joined OnlyFans, a Lon­ encers”, most creators receive no reward net age has meant that the success of on­
don­based subscription platform. About beyond the thrill of notching up “likes”. line media platforms has depended on

009
 The Economist May 8th 2021 Briefing The creator economy 19

their ability to help users discover it. Rath­ to monetise that content on­platform,
er than commissioning videos or articles, or…they'll become just a promotional hub, Sing a song for sixpence
they have focused on building algorithms where people essentially advertise the Spotify, number of artists* by value
or content­management systems which content that they're monetising on other of annual royalties, 2020
serve users the best of others’ creations. platforms,” says Josh Constine of Signal­
$1k
One consequence of the internet is that Fire, another venture­capital firm. Number of artists: 184,500
“value has shifted away from companies Twitter was in danger of becoming a
that control the distribution of scarce re­ promotional tool for Substack writers and
sources to those that control demand for Clubhouse broadcasters. It is now trying to
abundant ones,” writes Ben Thompson, beat both at their own game. In January it
author of the tech newsletter, Stratechery, bought Revue, a newsletter firm, and cut $5k
who calls such firms “aggregators”. Be­ its commission to 5%, half Substack’s. On 67,200
cause the platform sets the conditions for a May 3rd it added Spaces, a Clubhouse­like $10k
piece of content’s success, via its algo­ audio feature; soon it will let users sell 42,100
rithm, suppliers have to adapt to its rules, tickets to chats they host. The ability to
thus commoditising themselves. In this sign up for a newsletter or join an audio $50k 13,400
world of abundant supply, content provid­ room directly from Twitter, without the $100k
ers become as interchangeable, and have friction of moving apps, gives the compa­ 7,800
as little bargaining power, as Uber drivers. ny an edge over its startup rivals, says Mark
Shmulik of Bernstein, a research firm.
*Earning at least $1,000 $500k $1m+
All things are become new Facebook is also trying to make creators Source: Spotify 1,820 870
Yet something in this model is changing. stick around. Last year it made paid sub­
Though there is more content than ever, scriptions widely available and enabled
platforms are competing harder than ever tips. It is now testing a Cameo­like feature than double that in 2019. In all it has paid
to get it. “There's an arms race to acquire called “Super”, a Substack­esque newslet­ contributors $30bn in ad­revenue shares
creators,” says Li Jin, founder of Atelier ter platform, and is paying gamers big and subscription fees in the past three
Ventures, a venture­capital firm. Startups bucks to join Facebook Gaming, its tribute years, far more than any other social plat­
are developing new ways for creators to to Twitch. In all, it says, the number of con­ form. Last year TikTok, a short­video app,
monetise their work. Substack gives writ­ tent­makers earning over $1,000 a month launched a “creator fund” which it says
ers 90% of the subscription fees they on the platform almost doubled in 2020. will dispense more than $2bn to users in
charge for newsletters; together its top ten “In developing all of these things, we’re its first three years. Douyin, its Chinese
authors earn more than $15m a year. actually really focused on the creator side, twin, is investing $1.5bn with the aim of
Twitch gives its game streamers more than even more than on the consumption side,” doubling its creators’ revenues. Snapchat,
half of its subscription fees, plus a cut of ad said Mark Zuckerberg, Facebook’s boss, in a another social­video app, last year
revenue and the money paid to “cheer” recent interview with Casey Newton, au­ launched Spotlight, a sharing feature
their performance. Cameo, a platform on thor of the Platformer newsletter. In an ef­ through which it is paying $1m a day to the
which 40,000 celebrities sell personalised fort to attract more of them, it is offering creators of its most popular clips.
videos to fans, passes 75% of the spoils to creators not just money but power: news­ Newer types of media are joining in.
contributors. Brian Baumgartner, an actor letter authors will own their recipient list Douyu and Huya, China’s largest game­
in “The Office”, an American sitcom, was and be able to take it to another platform, streaming platforms, each paid out ¥7.1bn
its top earner last year, making over $1m. the equivalent of being allowed to move ($1.1bn) to streamers last year, 31% more
Clubhouse, a social­audio app, allows tips one’s Facebook friends over to Twitter. than in 2019. Spotify and Apple, the two
and has an “accelerator programme” for YouTube, which has long given regular biggest podcast platforms, are wooing am­
promising hosts. It plans to test features video­posters a 55% cut of ad revenue, is ateur broadcasters. Last month Apple an­
such as tickets and subscriptions. developing new features including tips in nounced that it would let podcasters
In response, platforms that once paid the form of paid “applause”. It says the charge subscription fees, of which it would
little or nothing to creators are ponying up. number of channels joining its paid take a 30% cut for the first year, then drop­
Companies “need to either offer some way “partner programme” in 2020 was more ping to 15%; days later Spotify followed
suit—but said creators could keep the lot
(from 2023 it will take 5%).
Winner takes all As platforms fight over the most popu­
lar content, bargaining power is being
Roblox, share of players by game, % of total Patreon, number of patrons* and earnings transferred to the people who make it. Si­
May 5th 2021 mon Kemp of Kepios, an internet research
15 Number of data Monthly earnings, $’000 firm, compares platforms’ negotiations
points in this area 200 with top creators to tv networks’ wran­
Nearly 15% of Roblox users 1 992 gling with the cast of “Friends” over each
play “Brookhaven RP” season’s contracts. Many offer better terms
10
to their most successful creators: Twitch
100 reportedly pays a higher share of subscrip­
tion revenues to its top streamers; Sub­
5 stack offers advances to writers it believes
But most games are The majority of users have will be a hit. The share of revenue that cre­
played by less than few patrons and low earnings ators can earn seems to depend on how
0
1% of users easily they could leave. Moving one’s email
0 0 10 20 30 40
By game Number of patrons, ’000
list away from Substack is simple, so the
Sources: Ran Mo; Roblox; Graphtreon *Users with over 500 patrons. March 24th 2021
firm lets writers keep 90% of their rev­
enues. Game­makers on Roblox, who are

009
 20 Briefing The creator economy The Economist May 8th 2021

basically stuck there, keep about 25%. Ten months on, Mr Morgan has more cently the New York Times, have forbidden
The dancers of TikTok and pranksters of than 1,000 people paying a minimum of $5 writers from launching personal newslet­
YouTube, whose popularity rises or falls on a month (about 18% voluntarily pay more, ters without permission. A tyrannical few
the tweak of a recommendation algorithm, he says), close to his old salary on the Ath- deny their writer­serfs bylines, ensuring
may seem easily replaceable. In reality, the letic. Mr Morgan misses bouncing ideas off that the value from every article accrues to
opportunities for interaction with online colleagues, and the safety­net of an editor. the brand and not the author.
stars may make their audiences more loyal But he can write what he likes—and, he Record labels are another endangered
than those of other celebrities, Mr Kemp adds, “No one can lay me off anymore.” middleman. They have historically taken
points out. Jennifer Aniston and her bud­ Mr Morgan is a living example of the ob­ care of turning a song into a hit, in return
dies were in people’s sitting rooms for half servation in 2008 by Kevin Kelly, a technol­ for an ongoing share of revenues. But more
an hour a week. Charli D’Amelio, TikTok’s ogy writer, that any artist could make a liv­ and more artists are going it alone. More
top bopper, is in their pockets all day. ing with just “1,000 true fans” willing to than 60,000 new songs are uploaded to
“After a decade of building their audiences, spend $100 a year or so on whatever the Spotify every day, most by bedroom­based
a class of Super Creators have emerged that creator makes. With that, he wrote, “You rockstars who can use new online services
have leverage over their aggregators,” can make a living—if you are content to to handle the logistics themselves. United­
wrote Rameez Tase, head of Antenna, an make a living but not a fortune.” The broad­ Masters, a music­distribution platform
audience­measurement company, in a re­ ening range of online monetisation meth­ which bills itself as “a record label in your
cent blog post. “They simply built such ods is making it easier to wring that sort of pocket”, recently raised $50m in a venture­
large, engaged audiences that those audi­ money out of devotees. Video­gamers can capital round led by Apple. Tools like Splice
ences would follow them anywhere.” top up the money they make from stream­ make recording easier. Companies like
ing by working as paid wingmen on gam­ Fanjoy take care of merchandise.
A great multitude ing platforms such as China’s Heizhu Es­ And financing is getting simpler. One
Yet what of those creators with more mod­ ports. Some creators see non­fungible to­ startup, hifi, helps artists manage their
est followings? A few online stars earn me­ kens, a method of certifying digital cre­ royalties, paying them regularly and front­
gabucks, but the tail is long (see charts on ations, as a way to earn more from their ing them small sums to make up shortfalls.
previous page). Spotify says it wants to give superfans. With platforms like Teachable Another, Karat, extends credit to creators
“a million creative artists the opportunity or Podia, which deal in pricey online based on their follower count. Helped by
to live off their art”. But only about 0.2% of courses, creators can plausibly get by with such services independent artists took
the 7m­plus musicians on the platform more like 100 true fans, Ms Jin reckons. home 5.1% of global recorded music rev­
make more than $50,000 a year in royal­ The more possible it becomes to make a enues last year, up from 1.7% in 2015, calcu­
ties; just 3% make more than $1,000. There living out of online content, the more pre­ lates midia Research, a consultancy. In the
are 20m gaming “experiences” on Roblox, carious becomes the position of the com­ same period the share of the three largest
but nearly 15% of all play takes place on one panies that have acted as intermediaries record labels fell from 71.1% to 65.5%.
game, “Brookhaven rp”, according to anal­ between creators and consumers. Newspa­
ysis by Ran Mo of Electronic Arts, a game pers, which solved a physical distribution What has been will be again
developer. On Patreon, where people can problem that no individual writer could Just as the internet allowed brands to by­
subscribe to creative services of all sorts, hope to overcome, are one example. Sub­ pass physical shops and sell directly to
200,000 creators earn a total of $1bn a year. stack’s leaderboard includes journalists customers online, social platforms “offer a
The top earner makes around $2m, but such as Glenn Greenwald and Matthew path for creators to communicate directly
about 98% make less than the federal mini­ Yglesias who have found that readers are with their audience,” says Mr Shmulik. Yet
mum wage of $1,257 a month. willing to pay them far more than the out­ they still need the new media platforms,
The main way to monetise online con­ lets that used to employ them (and that which are becoming more like old media
tent has been advertising. Making real newsletters give them greater editorial companies. Rather than simply helping
money requires a huge audience: even 1m freedom, too). Some newspapers, most re­ consumers navigate a mass of commodi­
views on YouTube might make the poster tised online content, they play an active
only about $2,000. Some types of content role in commissioning and curating it.
attract even lower ad rates. PornHub says Substack insists that advances are de­
its amateur contributors earn an average of termined by “business decisions, not edi­
$0.60 per 1,000 views; 1m hits would net torial ones”. Yet it offers writers mentoring
just $600. Ads can make megastars rich, and legal advice, and will soon provide ed­
but cannot provide a living for small­time iting services. YouTubers can post what
foot goddesses and other niche creators. they like, within broad guidelines, but they
The trend towards subscriptions, and cannot monetise content around what
other models of monetisation, is changing YouTube deems “controversial” subjects,
that, bringing with it the possibility of a including abortion. Twitch has imposed
creator middle class. Consider Craig Mor­ rules for its streamers’ behaviour offline.
gan. The sports journalist was laid off last On May 5th Facebook’s “oversight board”,
year by the Athletic, an online publication, which rules on editorial matters, upheld
after the pandemic put live sport on hold. A Donald Trump’s ban from the platform.
friend suggested he try writing a newslet­ Mr Zuckerberg has said that his social
ter. az Coyotes Insider was launched on network ought to be treated like something
Substack in July. Its detailed updates about between a phone company, through which
a single National Hockey League team— information merely flows, and a newspa­
everything from goaltender Darcy Kuem­ per, which has editorial control of its con­
per’s knee injury to the immigration woes tent. As his and other platforms more ac­
of defenceman Ilya Lyubushkin—are not tively court and compensate creators, they
designed for a wide audience. But with a are moving further towards the newspaper
subscription model, they don’t need one. end of that continuum. n

009
 The Economist May 8th 2021 21
Europe

→ Also in this section

22 Germany’s climate goals
23 Ireland and Brexit
23 Released terrorists in France
24 Turkey’s alcohol-free lockdown
25 Charlemagne: The anti-Orban

Spain we didn’t want that way of doing politics

behind the backs of citizens.”
From rage to disillusion On the first two points the movement
achieved changes. Unlike the policy during
the slump of 2008­12, Spain’s government
has spent heavily to protect household in­
come during the pandemic, partly thanks
to more accommodating policies from the
MADRID
European Central Bank and the European
A decade after the indignados the country is still searching for a new politics
Commission. “Corruption still exists but

O n may 15th 2011 some 20,000 mainly

young, middle­class Spaniards occu­
pied the Puerta del Sol, in the heart of Ma­
tre­right. In 2015 these parties grabbed 34%
of the vote between them. A stable political
system long based on the Socialists and the
there’s no longer impunity,” says Ms Bes­
cansa. Dozens of politicians and bankers
have been jailed over the past decade.
drid, angry at austerity and the sense of en­ conservative People’s Party (pp) fragment­ Banks treat people with mortgages better.
titlement among politicians and bankers. ed. The result has been four general elec­ The indignados also heralded a generation­
Organised through social media and call­ tions in the past six years, none of which al change, as new political leaders rose
ing themselves los indignados (“the indig­ has produced a majority government. through the introduction of party prima­
nant ones”), it was a new kind of protest A decade on, Spain is in many ways a ries. At 49, Pedro Sánchez, the Socialist
movement, one that would be swiftly cop­ different country. The legacy of the indig- prime minister since 2018, is the oldest of
ied elsewhere, notably by Occupy Wall nados is palpable but far from straight­ the national party leaders.
Street and Occupy London later that year. forward. “May 15th was a great outburst of But in other ways remaking Spanish
Initially enjoying broad public support, dismissal,” says Carolina Bescansa, a so­ politics has proved elusive. Last year Pode­
the indignados shook Spain to the core. ciologist who took part and was one of the mos entered government as the Socialists’
Within three years they helped to spawn founders of Podemos. “The consensus was junior partner in Spain’s first coalition
two new national political parties, Pode­ on what we didn’t want. We didn’t want government since the 1930s. But Podemos
mos on the left and Ciudadanos on the cen­ more cuts, we didn’t want corruption and itself has changed. It began as a broad left­
populist outfit, with some similarities to
Italy’s Five Star Movement. In 2015 its lead­
All shook up er, Pablo Iglesias, hoped to displace the So­
Spanish parliament, lower house by parliamentary grouping, seats cialists, just as Syriza, another insurgent
Socialist Party People’s Party Convergence and Union (Catalan) United Left coalition Basque nationalists party, did in Greece. Podemos peaked in
Vox Podemos/United Left Esquerra (Catalan) Other Catalan nationalists Ciudadanos Others 2016 when it won 21% of the vote. It has de­
clined ever since, as Mr Iglesias ruthlessly
0 50 100 150 200 250 300 350
sidelined his fellow leaders and mimicked
2011 the Communist Party, with which he al­
Current* lied. He stepped down as a deputy prime
Source: Spanish Congress of Deputies *At May 2021
minister to run in Madrid’s regional elec­
tion on May 4th, but did poorly. He then

009
 22 Europe The Economist May 8th 2021

announced his resignation from politics. Germany and climate

The best chances of renewal were
squandered. In 2016 the Socialists and Ciu­ Red in robe, green in thought
dadanos, with 130 of 350 parliamentary
seats between them, agreed on a pro­
gramme of political and economic reforms
but were thwarted when others refused to
let them govern. An election in April 2019
BE RLIN
gave the two a combined majority of 180
A court ruling triggers a big change in Germany’s climate-change policy
seats. But Albert Rivera, Ciudadanos’s lead­
er, had steered his party to the right and
was set on a bid to displace the pp. It failed,
too. Mr Sánchez showed no interest in
T he “eight arseholes in Karlsruhe”,
otherwise known as Germany’s Federal
Constitutional Court, have been perennial
Easier said than done
Germany, greenhouse-gas emissions
wooing him. By then the two “detested irritants for politicians, as this outburst Gigatonnes of CO2 equivalent
each other”, writes Ramón González Férriz from an irate minister in the 1970s sug­ Energy Other industries Buildings
in a book on why regeneration failed. gests. Yet on April 29th, when the court’s Transport Agriculture Other sources
“The opportunity for reform is no lon­ first senate declared Germany’s climate­ 1.25
ger on the table,” says Pablo Simón of Car­ change law partly unconstitutional, min­ Emissions
Targets* 1.00
los III University in Madrid. “Now there’s a isters in the ruling coalition fell over them­
2020
different logic, of polarisation.” That dy­ selves to hail the judges’ wisdom in reject­ 40% 0.75
namic was at work when Mr Sánchez, with ing an act they had passed less than 18 2030
the help of Catalan and Basque nationalists months earlier. The judgment was “epoch­ 55%† 0.50
65%‡
as well as Podemos, toppled a pp govern­ making”, said Peter Altmaier, the Christian 0.25
ment with a censure motion over corrup­ Democrat economy minister. “This is a ve­
tion in 2018. It was intensified by the rise of ry special day,” added Olaf Scholz, the So­ 0
another new party, Vox, a hard­right splin­ cial Democrat finance minister. The pair 1990 95 2000 05 10 15 20 25 30
ter from the pp, initially in response to the then bickered over which of them was to Sources: German Environment *Reduction on 1990 levels
Agency; Federal Ministry for †Current target
threat of Catalan separatism. blame for the terrible law in the first place. the Environment ‡Proposed revision
Polarisation reached a new low in a nas­ Passed after bruising intra­coalition
ty campaign for the recent snap election on negotiations in 2019, Germany’s first cli­
May 4th in Madrid, which saw death mate law decreed that by 2030 carbon each other. Litigants are emulating legal
threats, mailed with bullets, against six emissions must be cut by 55% from the lev­ tactics that have worked elsewhere.
politicians, starting with Mr Iglesias. Isa­ el of 1990, and laid out annual quotas for Wary of treading on political toes, the
bel Díaz Ayuso, the pp regional president, different sources of emissions. It also stat­ judges did not demand a change to the goal
campaigned against Mr Sánchez, rather ed that Germany, like the rest of the eu, for 2030. Instead, Germany’s government
than her local rivals, under the banner of would aim to emit no net greenhouse gases was given until the end of 2022 to specify
“freedom”—to keep taxes light and bars by 2050. (The previous target for 2020 of a binding targets for the years after 2030. Yet
open despite the pandemic. This message 40% cut was narrowly met, thanks to the rather than leave the job to the government
and her spontaneous manner resonated pandemic.) The law was hopelessly unam­ that will take office after September’s elec­
far more with madrileños, weary of lock­ bitious, howled critics. “Politics is what is tion, Mrs Merkel’s coalition leapt into ac­
downs, than Mr Iglesias’s overheated claim possible,” shrugged Angela Merkel, the tion, drawing up legislation that far ex­
to be fighting “fascism”. Ms Díaz Ayuso chancellor. But now the constitutional ceeds the court’s instructions. The govern­
doubled the pp’s vote and came close to an court has redefined the limits of the possi­ ment now wants to lift the 2030 reduction
absolute majority of seats. The Socialists ble. The judges said the law risked forcing target to 65%, and to bring forward the net
suffered a heavy defeat and were overtaken future generations to “engage in radical ab­ carbon­neutral date to 2045. Among other
by Más Madrid, a regional party of dissi­ stinence” by leaving too much of the bur­ things, this may mean accelerating the
dents from Podemos driven out by Mr Igle­ den to the years after 2030. phase­out of coal and increasing the new
sias. Vox failed to gain much. Ciudadanos “No one expected this,” says Felix carbon price on heating and transport.
lost all its seats in the regional assembly, a Ekardt, a climate researcher and one of the Laying out a tighter emissions pathway
failure that could prove terminal. jubilant plaintiffs. Young activists cheered now, notes a government source, will help
In some ways this result points to the the court’s novel approach to intergenera­ shape post­election coalition negotiations
resilience of the old two­party system, tional justice. Legal theorists were struck in areas like transport and energy. It will al­
wounded though it remains. It suffers by its discovery in Germany’s constitution so affect the campaign. The government’s
from “two very disruptive parties at the ex­ of an obligation to cut emissions, given life scramble to respond to the ruling high­
tremes” in Vox and Podemos, Mr González by Germany’s commitments under the Par­ lights the power of climate in the political
warns. Mr Iglesias’s departure, like Mr Ri­ is climate deal of 2015. “This judgment debate, and the threat posed by the opposi­
vera’s last year, underlined their failure to shows that the Paris agreement has teeth,” tion Green Party, which is leading in polls
forge a “new politics”. A decade on, the pol­ says Paul Benson, a Berlin­based lawyer for and angling to take the chancellery.
iticians look just as disconnected from the ClientEarth, an ngo. As covid fades, the parties will place dif­
voters. But citizens’ rage has given way to The verdict will loom over every cli­ ferent bets on what will drive voters in Sep­
disillusion, aggravated by the pandemic’s mate­policy deliberation of future German tember. Armin Laschet, the conservative
destruction of lives and livelihoods. Five governments. It could also, reckons Joana aspirant to replace Mrs Merkel, hopes a
years of vigorous economic growth from Setzer of the Grantham Research Institute, mildly green­tinged economic pitch will
2014 to 2019 failed to restore Spaniards’ influence dozens of other climate lawsuits appeal to Germans worried about debt and
trust in their politicians and their institu­ around the world, especially those brought growth. The Greens think voters mean it
tions, among the lowest of any country in by children. As governments enshrine cli­ when they tell pollsters climate is their
the European Union. The indignados broke mate commitments into law, courts are biggest concern. Last week, eight judges in
more than they managed to build. n learning how to enforce them by watching Karlsruhe lent them a hand. n

009
 The Economist May 8th 2021 Europe 23

Ireland and Brexit the European single market.

While red tape and delays have roughly
Pluses and minuses halved lorry traffic on Ireland’s traditional
“land bridge” across Britain to the rest of
the eu, the number of direct ferry sailings
from the Republic to the continent has
gone up from around 12 a week to more
DUBLIN
than 40. Irish trade groups hope that Irish
The Republic is making the best of Brexit chains will now source more products lo­
cally, and replace uk supply hubs with lo­

T he new trade frontier between North­

ern Ireland and the British mainland
was intended as a conflict­prevention
barer after Brexit kicked in on New Year’s
Day, although supplies have since reco­
vered as businesses find ways to navigate
cal depots, creating new jobs.
Yet, as with Brexit itself, this isn’t all
about money or trade. For a century since it
measure, allowing Great Britain to leave the new system. won independence, the Republic of Ireland
the European Union’s single market with­ The mood is calmer in the south, partly has tried to escape the shadow of its former
out reimposing a hard border between because it saw the problem coming. Arnold colonial power and to reach out to the
Northern Ireland and the Republic to the Dillon of Retail Ireland, a trade group, says world. By contrast, Northern Ireland’s
south. So far, not so good. that the Irish government began planning unionists and many pragmatic businesses
Unionist politicians, angered by dis­ for a worst­case hard Brexit right after the have no interest in distancing themselves
ruption to shopping and trade with Great referendum in 2016. Northern Ireland was further from the rest of the uk.
Britain, now call for the protocol that im­ less well­prepared, not least because it had “Even though most Irish people think
posed a new Britain­Northern Ireland bor­ to wait until Christmas Eve to see the out­ that Brexit is crazy, the government here is
der to be scrapped. In Protestant areas of lines of a last­minute trade deal. Boris realistic that you have to deal with what
County Antrim youths rioted last month, Johnson, Britain’s prime minister, made you get,” says Bobby McDonagh, a former
egged on by loyalist paramilitaries. Last planning almost impossible by issuing Irish ambassador to London and senior
week Northern Ireland’s first minister, Ar­ contradictory statements, asserting that diplomat in Brussels. “We still need to co­
lene Foster, was forced to resign by her par­ there would be no new customs border on operate with London on Northern Ireland,
ty, having reluctantly accepted the proto­ the island of Ireland, no new regulatory and in other ways.” n
col as the least bad solution. checks between Britain and Northern Ire­
There has been much less fuss in the land, and yet also regulatory divergence
south, even though, in terms of trade with between the uk and Europe. “Our experi­ France and terrorism
Britain, both parts of Ireland are in much ence is that the uk has been woefully, aw­
the same post­Brexit boat. The Republic of fully, badly, naively underprepared for Reform or relapse?
Ireland has been independent from Lon­ Brexit,” says Simon McKeever, the boss of
don since 1922, but Britain is still by far the the Irish Exporters Association.
biggest source of Irish imports of goods, at Another difference in the south is that
€17.8bn ($21.4bn) last year, and its fourth­ businesses and politicians expect to see
PARIS
largest customer for goods exports: benefits from Brexit, as well as losses. Kie­
A lot of terrorists will soon be released
€12.4bn in 2020. Consumers in both coun­ ran Donoghue, head of financial services at
from French prisons
tries share many tastes, and until January Ireland’s industrial­development authori­
1st co­membership of the eu allowed Brit­
ish high­street retailers like Boots and jd
Sports to treat the republic as a sub­region
ty, a state booster for investment, said that
Ireland has already secured around 100
new investments and 6,000 jobs, half of
“B eing locked up is a piece of piss if
the guy was ready to die,” said Yous­
sef, who had been jailed for jihadism. “Ten
of their uk supply chains. them in finance, as uk­based businesses years in prison? It’s fi sabilillah (in the cause
In Dublin, as in Belfast, grocery shelves shift their headquarters out of London so of Allah). I’m going to learn the Koran, and
in British­owned retailers grew notably as to retain an eu domicile and access to leave even stronger.” Youssef (not his real
name) was speaking to Hugo Micheron, a
researcher conducting a study on jihadism
in France. By the time the book was pub­
lished last year, Youssef had served his
term and been set free.
France is grappling with an unfamiliar
challenge: how to handle those let out after
serving time for terrorist­related offences.
Of the 500 or so such detainees now be­
hind bars, 58 are due for release this year,
and a total of some 100 by 2023. Most were
convicted for joining jihadist groups in
Syria or Iraq, or helping others to do so.
They were often sentenced to terms of only
five to six years. Far stiffer sentences, in­
cluding life, were handed down last De­
cember to accomplices in the terrorist at­
tacks in Paris in 2015.
Last year Jean­François Ricard, the chief
anti­terrorist prosecutor, told the National
Assembly that he had “a real fear” about
The scenic route what would happen to the “dozens of peo­

009
 24 Europe The Economist May 8th 2021

ple who will leave prison, who are very

dangerous”. Current law enables such pris­ Turkey’s lockdown
oners, after a risk assessment, to be put un­
der surveillance and their movements lim­
Erdogan’s no-wine situation
ited for up to a year after their release. A
ISTANBUL
new anti­terrorism bill, which entrenches
An Islamist president sees the pandemic as a reason to ban booze
and extends measures introduced in 2017
to end a state of emergency, would increase
this to two years. It would enable courts to
compel freed offenders to check in with
E urope’s autocrats have different
views on covid­19 and strong drink.
Alexander Lukashenko, Belarus’s presi­
cases per head of any big country. The
government’s handling of the pandemic
has gone from decent to bad to worse.
probation officers and other authorities, dent, says vodka might ward off the The spike in infections came after the
and to enrol in training schemes, work or virus. Turkey’s president, Recep Tayyip authorities relaxed restrictions in March.
psychological support, for up to five years. Erdogan, begs to differ. Shortly after he Mr Erdogan and his ministers flouted
France’s Constitutional Council last ordered Turks to stay at home for 18 days, their own rules by attending large funer­
year rejected a previous version of some of starting on April 29th, after a record als and holding rallies in stadiums
these measures as a breach of fundamental surge in covid cases, his government said packed to the rafters.
freedoms, and told legislators to revise the it would ban alcohol sales during the They have not explained exactly how
bill. A reworked version is now going entire lockdown. banning booze sales will help. When
through parliament. Critics nonetheless The reaction was as predictable as a Turkey imposed similar measures during
worry about the mixed evidence of recidi­ hangover after too many glasses of raki, a weekend lockdowns last year, the interi­
vism among released jihadists. A Belgian local aniseed­flavoured firewater some­ or minister, Suleyman Soylu, claimed
study, cited by Marc Hecker in a report for times called “lion’s milk”. Thirsty Turks that “all Western countries” had limited
the French Institute of International Rela­ besieged supermarkets and liquor stores. alcohol sales during the pandemic and
tions, suggested that just 2% of the 557 in­ Beer and wine disappeared from shelves that the decision was “consistent with
dividuals convicted of jihadist terrorism at a record pace. Secular types accused scientific views”. In fact, only a handful
between 1990 and 2019 re­offended. Mr Erdogan of using a health crisis to of countries, including Thailand, India
In France, however, out of a sample of impose an Islamist policy. Similar accu­ and South Africa, have imposed such
137 individuals sentenced for cases related sations flew when, a few weeks ago, the bans. And though the who recommends
to jihadism between 2004 and 2017, at least government ordered all eating and drink­ that people avoid alcohol to protect their
22 re­offended, left for jihad, attempted to ing establishments to shut down over the immune system, it does not recommend
kill a prison warden or breached the law holy month of Ramadan, ostensibly to that governments decide for them.
against justifying terrorism. One of those curb the virus. The backlash has been surprisingly
released, Chérif Kouachi, took advantage “This is a clear attempt to interfere strong. Scores of supermarkets and
of his freedom to help shoot and kill 12 peo­ with people’s private lives and their way liquor shops across Turkey have ignored
ple in 2015 at Charlie Hebdo, a magazine of life,” said Veli Agbaba, the deputy the restrictions, arguing they have no
that had published cartoons satirising the chairman of Turkey’s main opposition basis in law. But the authorities have
Prophet Muhammad. party, referring to the alcohol ban. It also started to double down. At least one
France is giving itself extra means, as has political undertones. Opposition liquor vendor has been arrested. And on
well as legal powers, to fight terrorism. supporters tend to be metropolitan and May 4th, the government not only con­
Since 2017 it has recruited an extra 1,900 in­ secular; ruling­party supporters are more firmed the booze ban but extended it, “so
telligence officers and increased their bud­ likely to be rural, pious and teetotal. as to prevent overcrowding” at super­
get. It has a new post of national counter­ The case for the new lockdown is hard markets, to other goods it deemed “un­
terrorism and intelligence co­ordinator. to dispute. Covid infections and deaths essential”. The newly proscribed items
Fully 36 attacks have been foiled. soared to record levels in April. Over the range from toys to electronics to garden­
Yet the security services worry that last two weeks of the month, Turkey ing tools. Turks will have to brace for two
there is nonetheless a pool of potential re­ reported the highest number of active weeks without raki or rakes.
cruits to jihad on French soil who are
increasingly difficult to detect. Each of the
past eight terrorist attacks in France has
been carried out by an individual who was
previously unknown to the services. These
include the fatal stabbing of a female po­
lice official in Rambouillet, west of Paris,
last month, and the decapitation of Samuel
Paty, a schoolteacher, in October.
Terrorism, according to a poll, is now a
greater worry for the French than unem­
ployment. Marine Le Pen, the nationalist
leader who polls suggest will in 2022 again
reach the second­round run­off of the
presidential election, misses no chance to
stir up panic. President Emmanuel Mac­
ron’s term in office, she recently declared,
has been marked by “terrorist chaos”, and
if he were re­elected this would provoke an
“explosion”. Less than a year before the
vote, Mr Macron cannot afford to appear Beer cans are banned. Watering cans, too
timid towards terrorism. n

009
 The Economist May 8th 2021 Europe 25

Charlemagne The anti­Orban

Meet the other politician from Budapest

didates adopt a more abrasive tone. Peter Jakab, the leader of the
formerly far­right Jobbik, recently told Mr Orban: “I’ve never seen
a coward such as you.” (He was also once fined for trying to hand
Mr Orban a sack of potatoes in parliament, accusing him of vegeta­
ble­based electoral bungs.)
Whether Mr Karacsony’s manner will work outside the capital
is unknown. In Hungary, politics is as much about geography as
ideology. In Budapest, home to one in five Hungarians, residents
rely on still­vibrant online Hungarian media; in the countryside,
pro­government radio and tabloids rule. Last October the opposi­
tion failed to win a by­election in a rural seat, despite ganging up.
As well as picking a potential prime minister, the parties must also
arrange 106 primaries for individual constituencies this summer.
Those keen on helping from abroad should steer clear. Well­
meaning foreign interventions are not always welcome, says Mr
Karacsony. Mr Orban loves to portray his enemies as globalist pup­
pets, taking their orders from Brussels. Over­enthusiastic inter­
national support for the opposition can backfire. But a change in
the international atmosphere does help. Patience among Mr Or­
ban’s European allies ran out earlier this year, when the Hungarian
leader quit the powerful European People’s Party club of centre­
right politicians before he was pushed. Mr Orban’s reputation as a

G ergely karacsony, the mayor of Budapest, and Viktor Orban,

the prime minister of Hungary, could not be less alike. Mr Ka­
racsony presides over the cosmopolitan capital; Mr Orban counts
canny operator on the European stage has been dented.
Elections in Hungary are free but unfair. Ballot boxes are not
stuffed; opposition politicians are not disappeared. Still, gerry­
on the rural hinterland as his base. Mr Orban has near­total con­ mandering is rife, state media spout propaganda and opposition
trol over Fidesz, the party that has had near­total control of Hun­ parties find their state funding cut at short notice. Even so, talk of
gary since 2010; Mr Karacsony owes his job to an ungainly alliance dictatorship is overdone: Mr Orban can lose and he knows it. Re­
of six parties. The football­mad Mr Orban built a 3,800­seat stadi­ cent steps such as shunting Hungary’s universities into private
um in his home village (population: 1,700); Mr Karacsony, a former structures run by Mr Orban’s cronies show he plans to cling to
academic, campaigned against an expensive athletics stadium in some power, even if he loses office. “They are building a deep
his city (population: 1,000 times larger). For anyone still strug­ state,” says Peter Kreko of Political Capital, a think­tank. “If you are
gling to tell the difference, Mr Karacsony helpfully points out that: confident, then you do not build that.”
“He is short and fat, and I am tall and slim.”
Like the differences between Mr Karacsony and Mr Orban, And now for something completely different
Hungarian politics is now refreshingly clear­cut. It is Mr Orban’s Yet winning will still be the easiest part of the process. If it reaches
Fidesz party versus everyone else. After losing badly in all three office, the opposition will have the task of “de­Orbanisation”: un­
general elections since 2010, Mr Karacsony’s party and the other picking a state that Mr Orban has devised to enrich his friends and
main opposition groups have teamed up to bring down Mr Orban entrench his politics. This will take years. To explain the chal­
in next year’s vote. Individually, these parties were happy to poll in lenge, Mr Karacsony quotes Ralf Dahrendorf, an Anglo­German
double digits. Together the alliance, which ranges from the for­ political scientist, who once said it takes six months to write a
merly far­right Jobbik to socialists via centrist liberals, is polling constitution, six years to develop a market economy and 60 years
level with Fidesz, in the high 40s. For the first time in more than a to change a society. Keeping the coalition together in the country
decade, someone has a chance of booting Mr Orban out. at large will prove harder than in Budapest. At the moment, the op­
Attention has turned to who will lead the charge. A primary to position parties have little choice but to stick together. If they do,
choose the opposition’s candidate for prime minister will kick off they could win. If they don’t, they almost certainly won’t. This
the process this summer. Mr Karacsony’s surprise victory in Buda­ concentrates minds. Once in office, they may find the slow task of
pest in 2019 was the first example of this approach succeeding. The unpicking of Mr Orban’s deep state less thrilling than the cam­
45­year old pollster­turned­politician won the primary on the ba­ paign trail, so they will have to strain to stay united.
sis of being the least objectionable candidate, able to garner sup­ Get it right, however, and there is a bigger prize than reforming
port from voters with often wildly different views. Two years on Hungary. Mr Orban provided a how­to guide for the eu’s band of
and Mr Karacsony polls ahead of potential rivals for prime minis­ wannabe autocrats. A small, poor landlocked country with an im­
ter, yet he is still coy about whether he will eventually stand. penetrable language became one of the most influential countries
Dithering adds to the common criticism of Mr Karacsony that his in the bloc, for entirely negative reasons. The Hungarian method
natural meekness looks more like weakness to some voters. of grinding down democratic norms has been adopted elsewhere,
The choice of candidate will dictate the choice of strategy. Mr from Poland to Bulgaria to Slovenia. Infighting and ineptitude
Karacsony revels in a reputation as a peacemaker, able to heal dif­ from the opposition allowed Mr Orban to embed himself in the
ferences between his diverse supporters. He is reluctant to fight Hungarian state over a decade. For years, Hungary has provided an
Mr Orban on his own terms. If Mr Orban feeds on confrontation, example of what not to do. If Mr Karacsony and his allies succeed,
then it is best not to feed him, runs the logic. Other potential can­ it could for once prove an example worth following. n

009
 26 The Economist May 8th 2021
Britain

→ Also in this section

27 Body-part shortage
28 Fish fight with France
— Bagehot is away

Read more from this week’s Britain section:

Economist.com/Britain

Sadiq v Boris cause she was neglecting infrastructure,

impoverishing public services and pursu­
Why London’s bridge is falling down ing a hard Brexit that would harm the city.
That was a crude caricature of Mrs May,
but a fairer analysis of Mr Johnson. The
current prime minister personally dislikes
the mayor, who he believes is inexplicably
popular, and has long wanted him cut
Relations between the capital and the national government have worsened.
down to size. The covid­19 pandemic and a
That affects the whole country
change in Britain’s political geography

H ammersmith bridge has been closed

to all traffic for the past nine months.
The fine Victorian structure in west Lon­
kies had been offering odds on the re­elec­
tion of Sadiq Khan, the Labour mayor, at 1/
100—if you put £100 on him and he won,
have given him the means and the incen­
tive to do just that.
Covid­19 has scared Londoners off
don is cracking and could collapse at any you would make £1. Shaun Bailey, the Con­ trains and buses, forcing Transport for
moment; the borough that owns the bridge servative candidate, ran a poor campaign, London (tfl) to beg the Treasury for mon­
cannot afford to fix it. In a rational world, and the government appeared to have ey. The government has extracted a heavy
the government would shell out for re­ abandoned the city to Labour. Mr Khan price for its support. It has forced the
pairs, says Tony Travers of the London spent much time attacking not his oppo­ mayor to raise the congestion charge paid
School of Economics. But Hammersmith nents but his predecessor, now the prime by drivers entering central London, insist­
Bridge happens to connect one wealthy minister, Boris Johnson. ed on fare increases on public transport,
part of London with another part, and the His manifesto claimed that Mr Johnson and allowed itself to appoint two special
government is loth to be seen spending leads “the most anti­London government representatives to tfl’s board. Since the
money for their benefit. in recent history”. The prime minister mayor has more power over transport than
From a great height, London has fallen bashes the mayor whenever possible; in anything else, this clips his wings. And it
hard in the past year. Covid­19 hit the capi­ early April he even criticised Mr Khan’s certainly looks as though that is the gov­
tal first, killing people before doctors un­ transport policies during a press confer­ ernment’s aim. Railway and bus compa­
derstood the disease. Commuters and ence about covid­19. Mayors and prime nies outside London were given longer­
tourists have vanished, hobbling the city’s ministers have tussled before. But “the ten­ term bail­outs, with fewer conditions.
large service economy—no British region sion has never been quite as visible or The other big thing that the mayor con­
has suffered a sharper rise in unemploy­ quite as vocal,” says Jack Brown, who stud­ trols is strategic planning. There, too, the
ment. Yet the capital’s biggest problem is ies the city at King’s College London. government has crimped his power. In
political. The government of London has The row began soon after the Brexit vote March 2020 the housing secretary, Robert
badly fallen out with the national govern­ in 2016, when the newly elected Mr Khan Jenrick, rejected the London Plan—a docu­
ment. That is already harming the city; tried to position himself as a champion of ment that sets priorities for development.
eventually, the entire country will suffer. business­friendly internationalism. He ar­ Mr Khan was forced to rewrite parts of it.
On May 6th, as The Economist went to gued that the then­prime minister, There­ He had wanted the London green belt to be
press, London was going to the polls. Boo­ sa May, was “a disaster” for London be­ off limits to new housing, for example.

009
 The Economist May 8th 2021 Britain 27

Building there will now be allowed in “very migrants. “Everyone can have policy dif­ back from London, the engine is thrown
special circumstances”. ferences, but being engaged in a tribal war into reverse.
The changes to the London Plan are not is not helpful,” says Richard Burge, head of “Cities can turn,” says Rory Stewart, a
hugely consequential. But Mr Jenrick’s ar­ the London Chamber of Commerce and In­ former Tory minister who ran for mayor as
gument that he had to intervene because dustry, a lobby group. an independent but dropped out of the race
London’s record on homebuilding under What harms London is likely to harm a year ago. London has been badly dam­
Mr Khan was “deeply disappointing” is du­ the entire country in the long run. The cap­ aged by covid­19; parts of it, such as the
bious. In the 2019­20 fiscal year London ital funds the rest of Britain: in 2018­19 its West End, might not recover for years. And
added 42,000 net dwelling units—more net fiscal surplus amounted to £4,350 per if the capital struggles, Britain will lose one
than any other English region and the person, far more than any other region. of its remaining claims to global greatness.
highest figure since the turn of the century. And together with Manchester and Scot­ Mr Stewart says that many people would
The point of the intervention seems to land, London is one of the engines of devo­ laugh at the idea that Britain has one of the
have been simply to demonstrate that the lution. Responsibilities and powers are world’s greatest armed forces. But Britain
government could overrule the mayor and handed out to them first, then handed to can reasonably claim to have one of the
hold up his plan for a year. other regions. If Westminster grabs power world’s greatest cities. n
In March the government announced
that it would introduce a “first past the
post” voting system in London and other Body parts
metropolises for future elections. At pre­
sent Londoners can cast two votes for Water, water everywhere
mayor. If a voter’s first preference is not
among the front­runners, his or her sec­
ond­preference vote is counted. Moving
from that “supplementary vote” system to
first­past­the­post is unlikely to produce
different winners, says Patrick Dunleavy, a
The pandemic has resulted in a shortage in of cadavers
political scientist who helped create Lon­
don’s voting system two decades ago. But it
will reduce mayors’ personal mandates
and their legitimacy. Mr Khan is usually
P ress a knife into human flesh and, as
the blade slides in, the sensation subtly
changes. Human skin, says Claire Smith,
said to have won 57% of the vote at the last professor of anatomy at Brighton and Sus­
election in 2016, not the 44% he got before sex Medical School, “feels like chicken
second­preference votes were tallied. skin”; it is “slightly rougher” and “not al­
That change will endure even in the un­ ways slippery”. Slice into a human artery,
likely event that Mr Khan fails to win a sec­ meanwhile, and you will feel “a little bit of
ond term. So will another one. The govern­ springback”; while veins just feel “flat” and
ment used to assess bids for large infra­ nerves, says Dr Smith, “feel like a noodle”.
structure projects largely by using benefit­ This complex stew of sensations that
cost ratios. That suited the capital: because travels from blade to brain is known in the
it is so productive, dealing with a travel trade as “haptic feedback” and, in surgery,
bottleneck there often seems like excellent it matters. It has also, this year, been hard
value for money. But last year the Treasury for trainee medics to come by. Because the
rules changed. The government will now covid­19 pandemic has caused—and the
conduct “place­based” analyses. It might, irony of this hardly needs to be
for example, consider that boosting in­ laboured—a shortage in cadavers.
comes in a poor area would make a bigger Britain has experience of such short­
difference to people’s lives than boosting ages, and of attempts to fix them. An enter­
incomes in a richer area. The changes will prising early attempt to increase supply in
make it easier to justify funnelling money Edinburgh by Burke and Hare ended with
to parts of Britain that are poorer than Lon­ the execution of Burke, the introduction of sect); too fat (anatomy tables have weight
don—which is to say, almost everywhere. the 1832 Anatomy Act and a general sense limits); too tall (cadavers come inconve­
Not surprisingly, the current mayor has that dissection was a bit ghoulish. (Burke niently off the ends of those tables) and for
accused the government of doing London died as he lived: his body was publicly dis­ having a large unhealed wound (the em­
down, and the government has not exactly sected and his skeleton still stands in Edin­ balming fluid pours out).
denied it. It is more interested in courting burgh’s anatomical museum.) And the regulations are getting ever
voters in the former industrial heartlands Supplying the market remains tricky. tighter. Before 2004, so­called “second­
of the north and Midlands, some of whom Squeamishness is undoubtedly one pro­ person consent” was allowed, meaning
resent London’s power. “It plays well to Bo­ blem: people rarely like to think of their that bodies could be donated on the word
ris’s base to be seen to be tough on London, own death, still less of what happens to of the next of kin—and that families who
and it plays well with Sadiq’s base to be their own all too solid flesh after it. Anato­ wished to donate an irksome aunt, thus
seen to be standing up to the government,” my departments, unlike organ donation saving on funeral costs, could do so. Now,
says a former London Tory mp. programmes, do not advertise for custom. only first­person consent, in the form of a
But the fracas is not at all good for Lon­ Strict quality­control standards also act as form, signed by the individual, will suffice.
don. When the mayor blames the central a brake on the numbers accepted. All men To fill the gap in its market, Britain im­
government for the capital’s problems, and may be born equal but they do not, in the ports parts from America, where rules are
the government retorts that London is bad­ eyes of anatomists, die so. Bodies are re­ looser—second­person consent is permit­
ly run, the overall effect is to tarnish the ci­ jected for a large number of reasons, in­ ted, as is the use of unclaimed corpses
ty in the eyes of potential investors and im­ cluding being too thin (not enough to dis­ from prisons and elsewhere—but is at­

009
 28 Britain The Economist May 8th 2021

tempting to become more self­sufficient. Brexit 200 km

British
In 2015 a National Repository Centre was
established in Nottingham to source and Fish fight with Exclusive
economic
zone (EEZ)
store cadavers. It couriers parts around the
country, using undertakers. International France
transport is done by specialists—not, says
Dr Smith, “dpd or anything”. IRELAND

GERMANY
NETH.
Though supply is constrained, demand BRITAIN
Jersey is the centre of a row over
for corpses has been growing as the num­
fishing rights London
BEL.
bers training to be doctors have increased.
In 2005, medical schools bought 600 ca­
davers; in 2017, 1,300. Given both rising de­
mand and supply constraints, it is perhaps
I t is not exactly the Royal Navy task force
steaming towards the Falklands, but the
news that the prime minister has sent
Channel Is. EEZ
Jersey,
St Helier
Paris

surprising that arms and legs do not cost ships to protect an island threatened by an French EEZ FRANCE
an arm and a leg. Nor do heads: the going angry neighbour has historical resonance.
rate for one in America is around $500; a As The Economist went to press, two navy
foot is $350 (prices are similar in Britain). vessels were heading for the Channel Is­ time to prepare data using log books if they
Covid­19 has made things trickier still. land of Jersey from the north, while a flotil­ did not have electronic records.
Body donation in Britain paused, since no la of French fishing boats was sailing to­ Annick Girardin, France’s minister of
one was certain whether bodies would be wards it from the south. maritime affairs, said she was “revolted”
infectious. Besides, medical schools had The Channel Islands were part of the by the fishermen’s treatment: “We’re ready
other priorities. Dr Smith gained a tempor­ Duchy of Normandy that stuck with Britain to resort to retaliatory measures…concern­
ary mortuary in a car park and around 400 after the French lost them in the13th centu­ ing Jersey, I’ll remind you of the transport
deceased victims of the pandemic. She and ry. Crown dependencies whose foreign af­ of electricity via submarine cables.” Jersey
her lecturers tended them between fairs are run by Britain, they never joined gets 95% of its electricity from France. Clé­
teaching sessions. the eu, but relations between Britain and ment Beaune, France’s junior minister for
Despite deaths of more than 100,000 in Europe have shaped their history—Germa­ European affairs, said earlier that if Britain
excess of what the country would normally ny occupied them in the second world broke its commitments on fishing, retalia­
have experienced since the pandemic be­ war—and now Brexit is causing tension. tion could include action on financial ser­
gan, the nation’s anatomy departments The problem is fishing. Under an agree­ vices. A hundred French fishing boats were
have therefore struggled to fill their fridg­ ment between Britain and the eu, French said to be heading for St Helier on May 6th
es. Dr Smith’s department usually requires fishermen must acquire licences to fish in to protest, while a source in the French
around 70 donors a year: so far it is around Jersey’s waters. To get them, they must pro­ presidency said that France was hoping for
30 short. The London Anatomy Office, vide data showing that they were doing so “a return to calm and sang-froid”.
which provides cadavers for seven medical for five years before the referendum in Before this incident, relations between
schools in and near the capital, normally 2016. But they say smaller boats lack the Britain and the eu were improving. Britain
receives and processes 150 or so bodies ev­ necessary equipment, and that the licenc­ had climbed down over its refusal to grant
ery three months. Between March and June es are arbitrary and restrictive. A member ambassadorial status to the eu’s represen­
last year it took none. of the French parliament cited the case of a tative, and the two sides were taking a
During the pandemic this lack of cadav­ fisherman who used to catch sole and scal­ more pragmatic approach to solving the
ers didn’t matter, as many training courses lops 40 days a year, and had been told he post­Brexit problems in Northern Ireland.
were being paused and operations can­ could now catch only scallops, on only 11 But, as Britain discovered during the Cod
celled anyway. Now that the pandemic is days a year. Gregory Guida, Jersey’s assis­ Wars with Iceland that sputtered on and off
easing, surgical training is starting to pick tant environment minister, said the pro­ from the 1950s to the1970s, fishing is a dan­
up again, as is donation, but anatomy de­ blem was that the boats’ data were “very gerous business, liable to slip out of con­
partments are still struggling to meet de­ bad” and that he gave small boats extra trol at any moment. n
mand. Shortages are contributing to what
the British Medical Journal has called a “cri­
sis” in surgical training.
There are ways around the shortage of
cadavers: surgeons can and do train in oth­
er ways, such as 3d computer simulations.
But though these are good they are not,
says Neil Mortensen of the Royal College of
Surgeons of England, “yet good enough for
advanced surgical training.”
Other nations use different solutions.
In some countries, surgeons still train on
live animals, a practice that has many ad­
vantages—including realistic haptic feed­
back: if you cut a dog, it will bleed. Unfor­
tunately for medics, so too do the hearts of
animal­loving Britons at the thought of
such things, and the practice is not done
here. Although even if it were, it might not
help. Pet ownership has increased so rap­
idly in the pandemic that dogs, like cadav­
ers, are now in short supply. n Trafalgar all over again?

009
 The Economist May 8th 2021 29
Middle East & Africa

Somaliland fees and custom taxes already account for

70­80% of government revenues. Planned
Out of the rubble, 30 years on alongside the new facility are a free­trade
zone, an airport, hotels, an oil terminal and
a park for 1,000 lorries. Land values have
soared ten­fold.
Somaliland sees the port as bringing
political benefits, too. “It has upgraded our
BE RBE RA AND HARGE ISA
position in the region,” argues Abdishakur
An unrecognised state wins friends abroad but faces problems at home
Mohamoud Hassan, the mayor. Ethiopia

O n july ist 1960, five days after it cut its

colonial ties, the former British
Somaliland merged with the one­time Ital­
is winning friends abroad. But its sover­
eignty remains unrecognised. When dis­
cussing it, the West defers to African coun­
under Abiy Ahmed, its prime minister, has
grown closer to Somalia. His landlocked
country depends on the port of Djibouti for
ian Somaliland to form a united Somalia. It tries, which defer to Somalia, which is most of its imports. The new facility at Ber­
was a bad move. The dictatorship of Siad dead against ceding suzerainty. “The big bera, in which Ethiopia has a 19% stake,
Barre, who took office in 1969, marginal­ question”, says Ms Abdi, is “fine, we’ve gives it another option.
ised and massacred Somalilanders. On made progress. But where are we going Berbera also gives the United Arab
May 18th 1991, five months after his fall, from here?” Emirates (uae) an alternative foothold in
what was by then simply Somaliland de­ One answer can be seen in Berbera, on the region. After a long dispute, Djibouti
clared independence. It was a statement of the Gulf of Aden. “We call it our hope,” says seized the dp World facility there in 2018.
intent—and regret. Exiles returned home Khalifa Ibrahim, an adviser to the mayor, Somalia’s government in Mogadishu is al­
to rebuild their nation. “Hargeisa had been pointing to the expanded port opened in lied to Turkey and Qatar, which are rivals to
destroyed to rubble,” recalls Suad Ibrahim 2018 by dp World. Somaliland hopes that the uae, which in March became the first
Abdi, a campaigner for women’s rights. the investment of $442m (the largest in its Arab country to send a permanent dip­
“There were no buildings, no water.” history) by the Dubai­based port operator lomat to Hargeisa.
What happened next is Somaliland’s will prove catalytic for its economy. Port It has joined others in establishing a
founding story. At confabs—under trees or presence. Kenya recently announced it will
desert stars—clans agreed to share power. set up a consulate in the capital. In August
Presidential elections followed with regu­ → Also in this section Taiwan opened its East Africa office there
larity. The country is poor but, without and pledged aid for its fellow sovereignty­
30 Life, death and gas cookers
much aid, it has developed somewhat. challenged country. China tried to block
Hargeisa is not the prettiest capital, but it 31 Making vaccines in Africa the move. But Somaliland said it would not
serves a fine camel­milkshake. All of this support the principle that there is only one
32 The freedom to quit in Qatar
contrasts with the chaos in Somalia, where China, with Taiwan a part of it. “Somali­
foreigners have lavished money and guns. 32 The Houthis advance in Yemen land showed backbone,” says Allen Chen­
This month Somalilanders will mark 30 hwa Lou, the Taiwanese representative.
33 How autocrats pick their opponents
years of peace. The country of 4.5m people Such diplomatic advances show how

009
 30 Middle East & Africa The Economist May 8th 2021

far Somaliland has come in 30 years. Yet YEMEN 200 km

charcoal industry is one of the main rea­
some locals worry about whether its clan­ sons why the rainforest of the Congo basin
based political system that established sta­ DJIBOUTI Gulf of Aden is shrinking. The damage done to this rain­
bility is still the right one. “Somalilanders Djibouti forest, the world’s second largest, is not
Berbera
always say that we’re a good model for the just a tragedy for Congo; it is also one for
continent,” says Guleid Jama of the Human Somaliland the world, since the forest removes hun­

d
lan
Rights Centre, a local ngo. “But I don’t Hargeisa Burao dreds of millions of tonnes of carbon from

nt
think we are any more.” the atmosphere each year.

Pu
The constitution passed in 2001 was Claimed by Somaliland
and Puntland
How Africans can cook more healthily
meant to loosen the grip of clans on poli­ I NDI A N for more than a billion stomachs is a co­
tics. It limits the number of political par­ ETHIOPIA OCEAN nundrum. The poor need energy to have
ties to three, encouraging coalitions. But comfier, more prosperous lives. How can
most voters still invariably vote by clan. they do so without cooking the planet?
It is a system that “makes us less SOMALIA Africa’s population is growing faster

KENYA
prosperous”, argues Mohamed Fadal of the than any other continent’s. It is urbanising
Social Research & Development Institute, a Mogadishu faster, too. As people move to cities, they
local think­tank. Jobs and contracts are tend to switch from firewood to charcoal,
spread around on the basis of clan, not which, because it is made from wood that
merit. “You cannot leave a clan behind” is hard for the government to get aid and is then heated by burning more wood, de­
the founding principle of Somaliland’s loans, and for businesses to sell things stroys forests still faster.
politics, explains Mohamed Farah of the abroad. Travelling on a Somaliland pass­ Since few Africans, whether in cities or
Academy for Peace and Development, an­ port, which many countries do not recog­ villages, have grid­connected electricity,
other think­tank. It may be a better model nise, can be a nightmare. the obvious way to wean them off wood
than the winner­takes­all ethnic politics in Soon Somaliland will have spent longer and coal is to encourage the use of bottled
some countries, but many citizens feel it as a de facto independent country than it gas. India and China have managed to re­
stunts the development of true democracy. did as part of a united Somalia. Most duce pollution from cooking fires in this
Institutions meant to hold government Somalilanders know no other status. And way in the past decade. But markets for gas
to account are weak. Judges bow to the ex­ they want their country to write its own have been slow to take off in Africa because
ecutive and rarely prosecute corruption. story, even if it is not always a fairy tale. n rural folk in countries like Congo, where
Parliament is a rubber stamp. On May 31st almost three­quarters of people live on less
Somaliland will hold parliamentary elec­ than $1.90 a day, do not see the need to pay
tions for the first time for 16 years. Media Cleaner cookery for gas when wood is free. “I only cook with
could be much freer. Foreign journalists wood,” says Martin Batumala, a Congolese
are treated with grace and kindness, but lo­ Fire escape farmer. “I go and collect it every day on a bi­
cal ones can be arrested for upsetting the cycle with my children.”
wrong person. Last year a court ordered a By contrast, refilling a canister of 12kg
local social­media star to be deported for a with liquefied petroleum gas (lpg) costs
post in which he drank tea from a mug with $20, almost as much as farmers make in a
K AS AI
a picture of Somalia’s flag. month. Charcoal can be bought in small
Donors make it harder for Africans to
In the courtyard of the Hargeisa Cultur­ quantities, which makes it easier for the
escape deadly wood smoke
al Centre, young Somalilanders are danc­ cash­strapped to afford. And cost is not the
ing and making music videos. Jama Musse
Jama, the centre’s director, points at them
through his office window, noting that
Y vonne kayaya has never seen a gas
cooker. In a poorly ventilated room in
her home in Kasai, Congo, she stews potato
only consideration. Charcoal creates dis­
tinctive flavours, which many people like
and do not wish to give up.
70% of the country is under the age of 30. leaves over a charcoal stove no bigger than Advocates of clean cooking hope even­
“Peace is not enough for these young peo­ a small stool—as generations before her tually to change people’s habits. It would
ple,” he says. “They need jobs and opportu­ have done. “I sometimes cook with fire­
nities.” An estimated 75% do not have a job. wood. If I have money, I always buy char­
Women are neglected, too. Sucaad Odo­ coal,” she says, unaware that both fuels are
wa spent 24 years in London before return­ clogging up her lungs.
ing to Hargeisa. “But I didn’t count on the Ms Kayaya is one of the 4bn people who
status of women in my country,” she says, heat their food over a smoky fire. In sub­Sa­
citing how women lack rights to divorce haran Africa nine out of ten people cook
and need the consent of a male relative for with dirty fuel, such as wood, charcoal or
caesarean sections. Women’s inequality kerosene. This is unhealthy. Some
has led her to run for parliament against 2.5m­4m people die prematurely every
the wishes of her clan elders. The 82­mem­ year because of indoor air pollution, most
ber lower house has but a single female mp. of which is from cooking, according to the
Islam is another conservative force. A Paris­based International Energy Agency
women’s football tournament was called (iea) and the World Health Organisation.
off last year for apparently transgressing Breathing soot is particularly dangerous
sharia. In the city of Burao a “vice­preven­ for infants: worldwide it may cause almost
tion committee” has closed several female­ half of all fatal cases of pneumonia among
owned businesses. children under five.
Some Somalilanders privately admit There are environmental costs, too.
that the lack of international recognition is Wood may be renewable, but chopping
a handy excuse for domestic shortcom­ down trees for firewood or to make char­
ings. Yet so long as it is unrecognised, it is coal contributes to deforestation. The Keeping the home fire burning

009
 The Economist May 8th 2021 Middle East & Africa 31

be easier if gas were cheaper, but to make it

so will require lots more public and private
investment. One big obstacle is that do­
nors in rich countries are reluctant to back
investment in any fossil fuels, even though
the alternatives to gas—wood and char­
coal—are worse for the environment, for
the cooks and their children.
Opponents of gas note that it contrib­
utes to climate change, which is true. They
suggest that Africa should “leapfrog” to po­
wering itself primarily with solar, wind
and other renewable sources of electricity.
But some perspective is in order. The con­
tinent is responsible for less than 2% of
global carbon emissions. Its people, the
world’s poorest, are in effect being asked to
bear the costs of a sudden energy transi­
tion that many rich countries have been re­
luctant to embark on. Switching millions Bottling it in the face of a pandemic
of Africans away from charcoal and fire­
wood to a cleaner fuel would still mean Af­ Yet with reliable and cheap supplies from private firms and an experienced partner.
rica is helping to reduce carbon emissions, abroad, there was little incentive for Africa It also takes finance. New projects need
says Mansoor Hamayun, the boss of Bboxx, to make them. Since the pandemic began, contracts to supply vaccine for 10­15 years,
an international energy company that ini­ that calculation has changed. says Solomon Quaynor of the African De­
tially provided only rooftop solar systems The quickest way to boost production velopment Bank. Financiers also look at
in Africa, but now also offers lpg cookers. would be to invest in sites that currently “soft” infrastructure, such as good gover­
Gas “is not a perfect choice”, he says. “But make other vaccines or supplies for them. nance, stable politics, government spend­
it’s part of a journey to net zero.” n Last year Aspen Pharmacare in South Afri­ ing on health care and support for scientif­
ca agreed to make the Johnson & Johnson ic research.
covid­19 vaccine at an existing facility. It One of the challenges to the business
Vaccine manufacturing in Africa can churn out 300m doses a year. Its first case is what a vaccine manufacturer will do
have already arrived. when there is no pandemic. The solution is
Home brewing There is also potential in Senegal, to make some of the hundreds of millions
Egypt, Tunisia, Morocco and Algeria. All of doses of childhood vaccines that Africa
have experience in making vaccines, such uses every year. Yet any new facility will
as those used for yellow fever, tetanus and struggle to compete with the economies of
cholera. Ghana, Kenya and Rwanda are also scale at India’s Serum Institute, the world’s
seen as promising locations for vaccine­ largest vaccine producer.
Covid-19 has exposed Africa’s reliance
making. There are plans afoot in Nigeria Private firms are showing interest. The
on vaccines from abroad
and Ethiopia, too. The Institut Pasteur in Serum Institute plans to start production

U ntil relatively recently, India had

seemed to have evaded the worst im­
pacts of covid­19. This inspired hope that
Dakar, Senegal’s capital, is working with
France and the European Investment Bank
to produce about 300m covid vaccines a
outside India, though it has not said
where. Stéphane Bancel, the boss of Mo­
derna, which makes the high­tech mrna
Africa, with its young population, might year starting in 2022. Algeria has agreed to covid­19 vaccine, has said he is looking at
also fare well. Yet what is happening in In­ start making the Russian Sputnik vaccine how to set up a plant in Africa. Beyond co­
dia is a “wake­up call for the continent”, from September. vid­19, Moderna is interested in making
says John Nkengasong, the director of the Rwanda is particularly eager to make vaccines for yellow fever, chikungunya,
Africa Centres for Disease Control, a pan­ mrna vaccines, which use the latest tech­ dengue and Zika.
African body. The calamity overseas has al­ nology. Paul Kagame, its president, has One inducement is Africa’s Continental
so brought another problem into focus: In­ been talking to two mrna vaccine manu­ Free Trade Area, which came into effect at
dia has stopped exporting covid­19 vac­ facturers about setting up in his country. the start of this year and is a big step to­
cines in order to serve its own citizens, Other new vaccines, such as a protein­ wards creating a huge single market for
leaving Africa in a “very dicey situation”, based vaccine for malaria, might also offer vaccines on the continent. But a missing
says Dr Nkengasong. long­term business opportunities. piece needed to make this market work is
Alarm at the lack of vaccine­making ca­ Because setting up takes time, Africa’s the establishment of a continent­wide Af­
pacity on the continent has been growing covid­19 jabs will still need to come from rican Medicines Agency (ama), a proposed
for some time. South Africa has been push­ overseas for years. The goal of the au is that regulator that would be able to certify vac­
ing hard for a waiver on the patents on co­ 40% of Africa’s vaccine needs could be met cines and root out fake or low­quality med­
vid­19 vaccines through the World Trade on the continent within 20 years. This ex­ icines. A treaty to establish the ama was
Organisation. On May 5th America backed pansion will be challenging, but the world drafted two years ago, but not enough
a temporary suspension. has done something similar before. In countries have ratified for it to come into
Although Africa’s 1.3bn people offer a 2006 a technology­transfer programme force. “If African countries are serious
huge market for medicines, it imports 99% overseen by the World Health Organisation about vaccine manufacturing they have to
of the vaccines it uses (and 70% of its ramped up production of flu vaccine in de­ ratify,” says Mr Quaynor. “It has to happen.”
pharmaceutical products). Poor countries veloping countries. The ingredients for When it does, that will be the strongest sig­
elsewhere such as India show that it is pos­ success were a long­term commitment nal so far that Africa is ready to make more
sible to make vaccines almost anywhere. from governments, collaboration with of its own vaccines. n

009
 32 Middle East & Africa The Economist May 8th 2021

Qatar’s labour laws ly he found a new job as a data analyst. It’s a The war in Yemen
dream come true, he says.
Free to quit The ilo helped with the reforms. It ar­ Peace on hold
gued that they would make Qatar more at­
tractive to skilled foreigners, whom the
government wants to lure, and keep more
blue­collar workers in the country. That
would make it easier for local firms to find
The Houthi rebels have little reason
help. Previously, they had to spend months
Foreign workers get some basic rights to lay down their arms
recruiting and training new immigrants.

I n most countries a worker’s best bar­

gaining tool is the ability to say: “Take
this job and shove it.” Knowing staff can go
It is too early to tell if Qatar will develop
a functional labour market, says Zahra Ba­
bar of Georgetown University in Qatar. The
Just two years ago, from the mountains
to the east, forces loyal to the Yemeni
government could see the capital, Sana’a. It
elsewhere gives employers an incentive to workers most likely to take advantage of was the closest they had got to the city
treat them well. But foreign workers in Qa­ the reforms in the near term are those in since the Houthis, a group of Shia rebels,
tar have long lacked this basic freedom. the service sector, where word of new job overran it in 2014. But now the govern­
Under the emirate’s kafala system, their openings gets around. Construction work­ ment’s forces are on the defensive. They
visas were linked to specific employers: if ers are less likely to have enough informa­ have been pushed back to Marib, the last
they wanted to change jobs (or leave the tion to shop for new employers. big city in the north still held by the gov­
country), they needed their boss’s permis­ Bosses are pushing back. Some have re­ ernment (and seat of a province with the
sion. So the boss could abuse them with quired workers to sign contracts with non­ same name). The Houthis are within 4km
near­impunity. compete clauses. In other countries these of it (see map). Only air strikes by Saudi
But things are changing for the gas­rich are used to prevent high­fliers from hand­ Arabia, which supports the government,
emirate’s 2m migrant workers, who are ing company secrets to a competitor. In slow their advance.
95% of its labour force. Legions of Indians Qatar they are being used to stop blue­col­ Marib had until recently been one of Ye­
and Pakistanis mop floors, chop onions lar workers from changing jobs. The emir’s men’s safer cities. Those displaced by
and lay bricks. The kafala system kept their advisory council has tried to water down fighting elsewhere took shelter there. The
wages low. That made it cheaper for Qatar the reforms. This year it recommended a Saudis made it a base for operations. But
to build new stadiums for the football cap on the number of times a worker could the battle for it shows just how badly
World Cup, which it hosts next year. How­ switch employers and an annual limit on things have gone for the government and
ever, the tournament has also brought glo­ the proportion of workers who could leave its backers. They would gladly accept the
bal attention. Activists denounced the ka- a company. The government, though, has un’s call for a ceasefire. The Houthis, who
fala system and called for reforms. At last not accepted these changes. control much of the country, ignore it. If
in 2020, Qatar made a big one. Migrants face other complications. The they take the city, they will control the
Today foreign workers can quit their labour ministry’s website, where workers north’s only oil refinery and the gateway to
jobs and find new ones without risk of de­ go to get approval for new jobs, still asks oilfields in the east and south. “It will be a
portation. Qatar also raised the minimum for a resignation letter authorised by their disaster,” says a Western diplomat who was
wage and mandated a food­and­housing previous employer, though this is no lon­ in Marib last month.
allowance for poorer workers who are not ger necessary. Nick, for example, waited The territory controlled by the Houthis
lodged by their employers. The un’s Inter­ for his old firm to certify his resignation. is home to 70% of Yemen’s 30m people.
national Labour Organisation (ilo) says Now he is waiting for the government to The rebels have been installing a repres­
the reforms are already showing results. By renew his identification card, a process sive theocracy like the one in Iran, which
the end of March, 119,000 foreign workers that cannot start until the ministry ap­ arms them. Political opponents and curi­
had already changed jobs. Nick, 32, came to proves his new position. Fortunately, his ous journalists are locked up or executed.
Qatar from Uganda to work as a cleaner, de­ new firm has allowed him to start work­ Students are taught to hate the West. Cafés
spite training in computer science. Recent­ ing—at double his old salary. n where men and women once mixed have
been closed. An actress who modelled
without a veil was arrested this year. Some
of Yemen’s last remaining Jews were ex­
pelled by the Houthis in March.
A Saudi blockade has crippled the econ­
omy in the north. But the Houthis com­
pound the suffering. They divert aid and
sell it for profit. The un’s rollout of covid­19
vaccines in the north has been suspended
because the Houthis want to control deliv­
ery. Across the country, at least 400,000
Yemeni children could die of starvation
this year without urgent intervention,
warned four un agencies in February.
The Houthis still manage to keep their
war machine humming, though. Smug­
glers haul fuel to the north from ports in
the south that are controlled by the govern­
ment or its nominal allies. Houthi check­
points double as customs posts, raising
revenue to pay fighters. Iran uses the same
Next, longer lunch breaks route to smuggle “significant volumes of

009
 The Economist May 8th 2021 Middle East & Africa 33

200 km
Arab elections
SAUDI ARABIA
ted
pu
la
How despots pick their opponents

po
Saada
YEMEN

ly
Marib

rse
DUBAI
Red
Oil refinery Strongman seeks pleasant short-term partner with no ambition

Spa
S ea Sana’a
Marib
Hodeida
Taiz Al-Qaeda
presence
C andidates for president often need
no introduction: a run for the top job
is the capstone on a long, striving career
permitted to run was a nobody who had
previously endorsed Mr Sisi.
It helps to find an opponent even
ERITREA
Mixed/unclear in the public eye. Not so for Faten Ali more unloved than you are. In 2014
Aden Gulf of Aden Nahar, who seems to have found ambi­ Algerians had to choose between Abd­
tion late in life. On April 20th the speaker elaziz Bouteflika, an ailing, unpopular
Areas of control, May 5th 2021 of Syria’s parliament announced that Ms incumbent, and Ali Benflis, an ex­prime
Houthi rebels Pro-government coalition Nahar had registered to stand in this minister widely blamed for a massacre of
Southern Transitional Council month’s presidential election. Hardly protesters. Mr Bouteflika romped to
Source: Polgeonow.com
anyone in Syria had heard of her. Search­ victory from his sickbed.
es on social media yielded little. A widely Zine El Abidine Ben Ali, a Tunisian
weapons and components to the Houthis”, circulated photo of a woman said to be dictator, allowed a few opponents who
according to a un panel of experts. It sup­ her also appears on a Facebook post shared his politics. One admitted before
plies parts for their drones and missiles about a Russian pharmacist who com­ his race in 2009 that he could not com­
that are used to attack Saudi Arabia. mitted suicide in 2017. pete against the president’s “extraordi­
Marib’s loss would further demoralise If Ms Nahar’s bio and agenda were a nary” achievements. Candidates must
the pro­government coalition, which is al­ mystery, they were also irrelevant. The not resemble the incumbent too closely,
ready fragmented. Yemeni soldiers com­ incumbent, Bashar al­Assad, has spent a though. To avoid any embarrassing mix­
plain about unpaid salaries and a lack of decade destroying his country to stay in ups, authorities in Yemen disqualified a
arms, while the president, Abd Rabbo Man­ power. He has no intention of losing. man in 1999 because his name was simi­
sour Hadi, remains in gilded exile in Saudi For much of the past half­century, lar to the president’s.
Arabia. A separatist movement called the Arab authoritarians preferred to hold As for Ms Nahar, she seems to have
Southern Transitional Council (stc) is os­ yes­or­no referendums on their rule. enjoyed her turn in the spotlight. She
tensibly a member of the coalition, but it Lopsided margins meant the people introduced herself in an interview with a
has fought the government for Aden and adored them, they claimed. In 1995 Sad­ Russian news channel. A Facebook page
now controls much of it. Many of the stc’s dam Hussein attracted a mere 3,052 “no” purporting to be her campaign website
leaders cheer on the Houthis. Some of the votes out of 8.4m cast. The next time, in outlined a plan to launch a Syrian space
tribes around Marib flirt with them, if only 2002, he did better, with 100% support mission by 2025, never mind that Syrian
to extract more cash from the government. and a record­setting 100% turnout. His motorists these days are struggling to
The government’s international back­ campaign song, a rip­off of Dolly Parton’s find petrol for their cars.
ers are losing interest in the war. The Unit­ “I will always love you”, expressed the Alas, her ambitions were soon
ed Arab Emirates pulled most of its troops obligatory attitude. grounded. On May 3rd Syria’s high court
out of Yemen in 2019. Shortly after taking Since the mid­2000s, though, some approved just two candidates from the
office, President Joe Biden said he would autocrats have begun to let other candi­ list of 50 who had applied to run against
end “all American support for offensive dates run. Free elections, these are not. Mr Assad. Her name was not on the list.
operations in the war in Yemen”. The Saudi There are restrictions before the vote, Perhaps she should count herself lucky.
campaign, launched in 2015, has fallen into irregularities on election day and often Hours after the court made its decision,
a quagmire. Instead of curbing Iranian in­ ruthless crackdowns afterwards. But the regime leaked nude photos of one of
fluence, as intended, the war has enhanced rulers hope the veneer of democracy will the approved challengers.
it. In an interview last month Muhammad fend off discontent at home and crit­
bin Salman, the Saudi crown prince and de icism from abroad. However, even fake
facto ruler, appealed to the Houthis to join elections pose a conundrum: how do you
him at the negotiating table. choose the candidate who will lose?
So far the Houthis have refused. The The first rule is to avoid genuine
un’s envoy to Yemen, Martin Griffiths, has challengers. Under pressure from Amer­
been persona non grata in Sana’a for a year. ica, Hosni Mubarak allowed opponents
In February Mr Biden removed the Houthis to run in 2005. One was Ayman Nour, a
from America’s list of terrorist organisa­ reform­minded member of parliament
tions, a move aimed at increasing the flow who formed Egypt’s first licensed opposi­
of aid and kickstarting the peace process. tion party. Widespread fraud ensured
But since then the Houthis have marched that Mr Nour won less than 8% of the
towards Marib. vote, and he was soon sent to prison (for
Taking the city would strengthen their election fraud, ironically). But he re­
bargaining position. But it will not be easy. mained a political nuisance until the
Marib’s defenders and most of its inhabit­ revolution of 2011.
ants detest the Houthis' politics and reject Egypt’s current president, Abdel­
their religious beliefs. The open ground Fattah al­Sisi, takes no such chances.
around the city makes the attackers easy When he ran for a second term in 2018,
targets for Saudi jets. Like the war more most opponents were arrested or intimi­
broadly, the battle for Marib could be long dated before the vote. The only man Assad and a potential rival
and bloody. n

009
 #ModernMBA

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009
 The Economist May 8th 2021 35
United States

Permitless­carry gun laws months of this year set another record. In

its most recent quarter, Smith & Wesson, a
The firearms free-for-all gun manufacturer, recorded sales that
were double—and gross profits triple—
what they were a year earlier.
The pro­gun lobby, including the Na­
tional Rifle Association (nra), has armed
DALLAS
Republican state politicians with argu­
Faced with a spike in murders and frequent mass shootings, many states are
ments that more citizens with guns could
pushing through more permissive gun laws
help boost public safety and that the gov­

A fter a year spent at home in pyjamas

and fitness clothes, the question of
what to wear outside is on the minds of
six years. The new laws unwind safeguards
and trump “concealed carry” licensing
schemes already in place. To carry a con­
ernment should have no say in whether
someone can carry a gun in public. Propo­
nents have rebranded it “constitutional
many. Some also have in mind an unex­ cealed handgun in Texas today requires a carry”, instead of “permitless”. But it was
pected accessory: handguns. Across the licence, which includes a background not so long ago that Republican states
country states are trying to make it easier check, fingerprinting, training, a written banned people from carrying handguns in
for people to carry guns in public without exam and shooting test. Under the pro­ public at all.
applying for a permit, being subject to a posed legislation, all that would go. In the 1980s and 1990s the nra pushed
background check or going through train­ The rise of permitless carry is notable for new laws allowing people to carry con­
ing. Since February five states have passed because so many states are loosening gun cealed guns with a permit, and then, hav­
new or expanded “permitless­carry” laws. laws at a time when mass shootings are fre­ ing achieved that, pushed through a new
Some states, such as Utah, where per­ quent, violent crime is rising and gun sales set of “shall­issue” laws that gave law en­
mitless carry went into effect on May 5th, have reached new heights. In 2020 a record forcement less discretion over restrictions
require guns to be concealed (for example, 39.7m federal background checks were on who should receive a permit, even for
in holsters tucked underneath a jacket). conducted for firearm sales. The first three people with histories of mental illness and
Others, such as Tennessee, will allow peo­ crimes. Permitless carry is the “next fron­
ple to carry their handguns in plain sight. tier” for the gun lobby, says Adam Winkler
→ Also in this section
Five more states, including Louisiana and of the University of California, Los Ange­
South Carolina, are considering permit­ 36 Facebook and Donald Trump les, Law School. “Permitless carry is taking
less­carry bills, as is Texas, where the off because gun­rights supporters don’t
37 The home­ownership boom
state’s Senate followed the House in pass­ have many rights left to loosen,” he says.
ing such a bill, also on May 5th. 37 Waiting around for stuff Permitless carry is spreading even
Twenty years ago only Vermont allowed though the nra is besieged by problems,
38 Trade in tech with China
people to carry handguns without a per­ including an investigation by New York’s
mit. By the end of this year, at least 20 39 Unsolved murders in St Louis attorney­general into financial fraud by
states will. Three­quarters of them have the non­profit’s leadership that has led it to
40 Lexington: The founding fish
passed permitless­carry laws in the past file for bankruptcy in Texas. But the trend

009
 36 United States The Economist May 8th 2021

shows how far the nra has already ing, chilling effect” on police officers. Facebook and Donald Trump
changed the political culture and interpre­ Her group may challenge them in court.
tation of the Second Amendment through But gun help will probably not come from Speechless
its lobbying. It also reflects how moderates the judicial branch either. This autumn the
have been weeded out of the Republican Supreme Court will hear its first gun­rights
Party, helping radical stances on guns get case in years. Justices will rule on whether
more support, says Daniel Webster of the a New York law, which makes it difficult to S AN FRANCISCO
Johns Hopkins Centre for Gun Violence receive a permit to carry a gun in public for Facebook’s Oversight Board says that
Prevention and Policy. self­defence, is legal. Donald Trump’s three Donald Trump can be kept off—for now
Those championing permitless carry conservative nominees to the court may
argue that having more armed citizens will
help save lives. Tennessee’s governor, Bill
Lee, called his state’s new law “core to a
well have shifted the balance of views on
guns towards gun­owners.
Texas, the country’s largest Republican
“S ave america” is the slogan at the top
of Donald Trump’s newly launched
blog, where anyone nostalgic for 2020 can
strong public­safety agenda”. Yet in Ten­ state, will be an important test of how far find tirades resembling those he plastered
nessee and elsewhere police have cam­ politicians are willing to push their pro­ on social media before he was kicked off
paigned against permitless carry, saying it gun agenda. The state is so gun­friendly Facebook, Instagram, Twitter and YouTube
endangers them and makes it more likely that there is a separate “fast track” at the for his statements during the storming of
that criminals and felons could walk Capitol building allowing those with con­ the Capitol on January 6th. Next to his
around armed. As Stan Standridge, the po­ cealed­handgun licences to bypass metal posts are icons for users to click and share
lice chief in San Marcos, Texas, has pointed detectors and bring their guns in. The go­ Mr Trump’s messages on Facebook and
out, the Lone Star state requires licences to vernor, Greg Abbott, has said that Texas Twitter, reminders of how those platforms
drive a boat and cut hair. Yet guns can should become a “Second Amendment confer the widest reach and influence.
wreak far more havoc than boats or hair­ sanctuary state” and has recently come out For now, Mr Trump’s blog is all he has.
clippers. This is a rare issue where Republi­ in support of permitless carry. On May 5th Facebook’s independent con­
cans have split from the interests of the po­ The Texas legislature is considering a tent­review body, the Oversight Board (ob),
lice in favour of pleasing their base. raft of gun bills in addition to permitless issued its most anticipated ruling since it
carry. These include a bill that prohibits began hearing cases last year, upholding
Annie get your AR­15 hotels from banning guests from bringing the company’s decision to suspend Mr
At the risk of stating the obvious, permis­ guns to their rooms and one that prevents Trump’s accounts but saying that doing so
sive gun laws do not make people safer. the state from doing business with compa­ indefinitely was inappropriate.
There are several reasons why armed citi­ nies that discriminate against firearms In essence, the ob has returned the bur­
zens rarely interrupt shooting rampages, firms and groups. den to Facebook, telling it to devise clearer
including fear that the police may believe Yet even in Texas, permitless carry is rules and more consistent penalties, and
them to be the shooter, says Kris Brown of controversial. According to a recent survey giving it six months to make a final deci­
Brady, a gun­control organisation. A study from the University of Texas and Texas Tri- sion regarding Mr Trump's access to the
by researchers at Stanford looked at the bune, only 34% of Texans said that the state platform. It also asked Facebook to review
impact of “right­to­carry” laws and found should change its law to allow people to its role in helping spread Mr Trump's lies
that ten years after adoption, they were carry their handguns without permits, about November's election being stolen,
linked to a 13­15% increase in violent crime. while 59% were opposed. However, most and in fomenting the riot of January 6th.
The full effects of permitless carry on Republicans are more worried about out­ Those hoping for a final verdict on
Americans’ safety would probably take flanking conservative rivals in the prima­ whether Mr Trump could return to Face­
many years to establish. So many guns are ries than they are about winning a general book will be disappointed. But the ob’s de­
already in circulation that it is difficult to election. If Texas does pass permitless car­ cision is significant nonetheless. It points
discern the effects of specific changes to ry, it will become the most populous state to the difficult three­way balance online
laws. This was not helped by the nra suc­ to do so. But not the last. n platforms must strike between free
cessfully preventing federal funds from speech, online misinformation and real­
being spent on any firearms research that world harm—a quick calculus made by too
might point towards the need for more gun few people with too little transparency. It
control from 1996 until 2020. also highlights the influence that the ob is
With Congress unlikely to pass federal trying to exert by speaking snark to power.
gun­control regulation because of Repub­ “In applying a vague, standardless penalty
lican opposition, the states are where gun and then referring this case to the Board to
laws are being reshaped. Some, including resolve, Facebook seeks to avoid its re­
Colorado, New Jersey, and Virginia, have sponsibilities,” the ob wrote in its deci­
tightened gun policies in response to mass sion. According to Michael McConnell, a
shootings and safety concerns. But more former judge who is co­chair of the ob, Mr
states are going in the direction of gun de­ Trump’s “is not the only case in which Fa­
regulation than regulation, says Mr Web­ cebook has engaged in ad hoc-ery”.
ster of Johns Hopkins. The ob was conceived in 2018 by Face­
Meanwhile a growing number are also book’s founder, Mark Zuckerberg, as a “su­
becoming “Second Amendment sanctuar­ preme court” for content decisions. Cynics
ies”, as Oklahoma and Arizona have already view it as an attempt to deflect responsibil­
done this year, resolving not to comply ity for the company’s thorniest decisions,
with any new federal gun laws. Much of but it is a worthwhile experiment in creat­
this is symbolic, says Mark Jones, a profes­ ing a middle ground between corporate au­
sor at Rice University. Ms Brown of Brady tonomy and government intervention. The
disagrees, saying that the “Second Amend­ 20 members of the board have an indepen­
ment sanctuary” laws will have a “concern­ Feeling safer? dent streak. Of the nine cases on which the

009
 The Economist May 8th 2021 United States 37

ob has ruled, it has overturned Facebook’s rising home­ownership rate. Millennials,

initial decision six times. Up a level on average, are less likely to be home­own­
If the decision on Mr Trump’s case United States, owner-occupied households ers than their parents were at the same age.
pushes the social network to make its poli­ % of total Blame that in part on high levels of student
cies about how and when bans are im­ 70 debt, which make other sorts of borrowing
posed clearer, the ob will have proved its difficult. Nonetheless the millennial gen­
worth. But it left a “big gap” by not offering 68 eration is entering its prime home­buying
more definitive guidance, says David Kaye, period (the median age of a first­time
66
a former un special rapporteur on free home­buyer is 34). After falling prior to
speech. He argues that the board should 64 2012, the share of 30­somethings in the
have been clearer about when politicians overall American population is now rising.
62
should receive different treatment than How much higher could home­owner­
other users, and also that it should have 60 ship go? The biggest impediment could
been given Facebook more direction about prove to be the supply of available homes.
investing more to reach faster decisions on 1970 80 90 2000 10 21
People cannot become home­owners if
questionable but significant posts. Source: Census Bureau
they have nowhere to move to. The number
Nor will the ob’s decision shield Face­ of houses available to buy is now near his­
book from more criticism. Senator Bernie torical lows. Yet there are some signs of a
Sanders and Alexei Navalny, the Russian sequences too, such as less entrepreneur­ revival in home­building; in January the
opposition leader, are among those who ial spirit and unwillingness to move in or­ number of new authorised housing per­
have expressed concern about social­me­ der to find work. mits hit its highest level since before the fi­
dia platforms censoring Mr Trump. The Yet rising home­ownership may bode nancial crisis of 2007­09. Housing starts,
ob’s decision “will be cheered by people on well for America’s economic recovery from meanwhile, are also looking surprisingly
the left in the short run,” predicts Matthew the pandemic. Home­owners are likelier strong. America’s home­ownership surge
Perault, who runs the centre on science than renters to live in single­family could last for a while yet. n
and technology policy at Duke University homes. This encourages the construction
and was formerly Facebook’s director of of such houses, instead of other types. And
public policy. “But in the long run, regula­ this, in turn, is likely to boost gdp, because Waiting
tors will be scared of what this shows about single­family homes tend to be higher­
the company’s ability to choose winners quality and have more amenities. Spend­ Time and money
and losers on speech.” According to Mr Pe­ ing per completion is almost 50% higher
rault, the chances that the government will for single­family units than for multifam­
eventually take on big tech by rewriting ily ones, according to a paper published in
antitrust, privacy and content rules have 2017 by Goldman Sachs, a bank.
just gone up. n The pandemic has boosted home­ow­
Black Americans spend more of the day
nership for a number of reasons. People’s
being kept waiting
preferences have shifted. In a world of
Renting v buying

The house wins

stay­at­home orders and social distancing,
security of tenure may be even more desir­
able than it was before (being evicted in the
T ime should be a great leveller. Jeff Be­
zos or Amazon warehouse clerk, every­
one gets 24 hours a day. But worse­off
middle of a pandemic is grim). Families Americans have more of their time wasted
who have cut back on meals out and holi­ just waiting around.
days have also accumulated more savings Poorer people have to wait longer for
for a deposit (down­payment), making it basic services. Low­income neighbour­
easier to clamber onto the housing ladder. hoods often have fewer shops and medical
After years of decline, home-ownership
Generous fiscal­stimulus handouts have centres, with fewer staff on hand and
is rising in America
also helped swell households’ savings ac­ crowds at their doors. The worse­off claim

D uring the pandemic America’s hous­

ing market has behaved oddly. Prices
have increased rapidly, even as the econ­
counts. Interest rates on mortgages have
fallen sharply.
Yet the rise in home­ownership pre­
unemployment benefits or food stamps,
which means interacting with creaky gov­
ernment administration. And low­wage
omy fell off a cliff, defying predictions. In dates the pandemic by a few years, mean­ jobs come with rigid hours, which make it
contrast with the last recession, few people ing that other factors must also be in play. difficult to take an extended lunch break
have defaulted on their mortgages. A less­ One relates to the last recession, more than and pop to the bank when it’s quiet. The
noticed trend is that the home­ownership a decade ago. From 2007 onwards many time squandered in delays could be better
rate has jumped (see chart). Part of the ap­ home­owners found themselves underwa­ spent working, studying or just kicking
parent increase, especially the enormous ter and were forced to foreclose. This pro­ back with a beer, points out Stephen Holt at
rise in the second quarter of 2020, is a sta­ cess, however, took many painful years to the University at Albany. “Time is a finite
tistical mirage: the pandemic made it hard play out, reducing the home­ownership resource,” he says. “It’s something you just
to collect data, meaning that home­owners rate until about 2016­17. In addition, for don’t get back.” (Which is why this article is
were oversampled in the surveys. Yet there much of the 2010s mortgage­lending stan­ so concise.)
is little doubt that a genuine surge in dards were tight, making it difficult for a It was when Ms Holt’s partner came
home­ownership is under way. new generation of home­owners to home fuming from the crowded local opti­
Politicians the world over would wel­ emerge. Only in the latter part of that de­ cian that he began crunching the data.
come such a rise, believing that owning a cade did lending conditions loosen suffi­ Americans who make less than $20,000 a
house turns people into model citizens. ciently to allow the home­ownership rate year spend around 46 minutes a day wait­
The evidence for this is surprisingly to increase once again. ing for basic services like child care, health
weak—and other research suggests that Long­term demographic change is an­ care and groceries, according to Mr Holt’s
home­ownership has some negative con­ other important factor behind America’s analysis of Bureau of Labour Statistics

009
 38 United States The Economist May 8th 2021

Tech trade policy Liberation Army. That Mr Mulvenon has

You better wait a minute even been under consideration demon­
United States, average waiting time for services*
By income and race, 2020, minutes per day
Assuming the strates how far the role of bis and the poli­
tics around it have shifted, as he is not a
High income $150,000+ Low income <$20,000
position lawyer and has no experience administer­
ing or complying with export­control reg­
30 40 50 60 ulations. Barack Obama appointed a law­
All yer, George W. Bush a tech­company boss.
Joe Biden has not yet chosen a path on
The post was vacant for most of Mr Trump’s
trade in technology with China
White term; hence, in part, the chaos.

Black T he process of filling vacancies at the

Bureau of Industry and Security (bis)
does not normally make the news. An
Political appointees do not determine
policy, but rather implement what flows
from the government, and from the Na­
Source: American Time *Groceries, medical care, agency of the Department of Commerce, tional Security Council (nsc) in particular.
Use Survey hairdresser, etc
bis is tasked with running America’s ex­ Mr Biden’s nsc contains plenty of exper­
port­control regulations. These rules were tise on China and technology. Saif Khan,
(bls) surveys. That is almost 12 minutes originally designed to prevent the compo­ the council’s Director for Technology and
more than those earning over $150,000 a nents of weapons of mass destruction National Security, published a paper in
year. The gap adds up to an extra hour and from being shipped off to terrorists. The January which laid out a plan for curtailing
20 minutes a week or ten full working days work of overseeing them was important Chinese semiconductor development. Its
per year. Add the time spent waiting for public service, but carried out in the back­ other members want to develop a tough
transport, and the inequality would proba­ ground, away from the public eye. new line, less for the industrial­competi­
bly be even worse. Donald Trump’s presidency changed tion reasons that motivated Mr Trump and
Rich or poor, Americans may have it that. He and the China hawks in his admin­ his administration than because of the
better than others. In Britain, where queu­ istration repurposed bis and its regula­ technology­enabled human­rights abuses
ing is a national pastime, a survey found tions as a weapon against China’s techno­ that the Chinese government is perpetrat­
the average person wastes 44 hours a year logical ascendancy. They rewrote the rules ing in Xinjiang and beyond. Yet the plan, at
waiting. However this included time spent several times between 2018 and 2020 in an present, appears to be unfinished. People
in traffic, which the estimates for America escalating series of attempts to cut off Hua­ close to Mr Biden’s staff say that policy on
leave out, perhaps on the grounds that ca­ wei, a Chinese technology giant, from glo­ China and technology remains undecided.
raoke and texting really ought to count as bal semiconductor supply chains. Huawei The choice of an under­secretary to run
time well­spent. has reported declining revenue in its two bis, when it is made, will be a sign of
In America, it is the difference across most recent financial quarters as a result, whether the Biden administration has a
racial groups that is most striking. Mr proving that America can use export con­ real plan. If the president chooses some­
Holt’s calculations suggest wealthy white trols to disrupt Chinese technological de­ one with little to no experience with ex­
Americans get what they want quickly. But velopment, at least in the short term. port­control law, but who has a hard line
among black Americans, those earning at This put bis right in the middle of on China, that will indicate that domestic
least $150,000 actually spend more time America’s biggest foreign­policy chal­ politics are dominating the administra­
cooling their heels than those earning lenge, containing China’s rise. Speculation tion’s thinking and that it lacks the confi­
$20,000 or less. That could be because they about its leadership began soon after Mr dence to fend off critics like Mr McCaul.
live in under­served predominantly black Biden took office. But the chaotic methods The appointment of someone who knows
neighbourhoods, but use services like of Mr Trump’s administration created a the law and can carry out the government’s
shops and salons more often. Whether it’s new political dynamic around the agency. bidding quickly would suggest that Mr Bi­
about being asked to produce more paper­ The repurposing of regulations often left den does, indeed, have a plan for redraw­
work for a mortgage or waiting while gaps between what the new rules actually ing the lines of technological trade with
someone white is bumped to the front of said and what the Trump administration China, and that he intends to use the most
the queue, says Elizabeth Cohen, a profes­ claimed they meant for China in speeches experienced people possible to do so. n
sor at Syracuse University and author of and press releases. Lawyers advised their
“The Political Value of Time”, “waiting is clients to follow the rules to the letter,
part of the experience of racism in the US”. thereby allowing them to carry on doing
Darren Hromadka, founder of In­ business with Chinese entities where it
Line4You, sees it first­hand. It was this was still legal to do so.
week four years ago at Berkshire Hatha­ The result is that many export­control
way’s annual shareholder meeting that he experts were seen as “soft on China”. On
got the idea for his business. The Omaha May 4th a Republican congressman from
resident spotted investors paying people Texas, Michael McCaul, called on the presi­
to wait in line overnight to bag a plum spot dent to nominate a candidate that has “real
when Warren Buffett took to the stage. His national­security experience, deep knowl­
app extends that service to all sorts of other edge of the ccp, and will not be conflicted
things, from gigs and new iPhone launches by deep ties to industry”.
to coronavirus tests. It is this sort of rhetoric that has driven
Mr Hromadka has spotted a trend: it is the administration’s consideration of “out­
almost always white Americans who pay sider” candidates who do not carry the da­
for so­called “line­standing” services. maging expert label. The archetype is
Meanwhile, 80% of those willing to wait James Mulvenon, a defence analyst who
around for $25­100 an hour are black or became known in Washington last year for
Hispanic. “Minorities are used to waiting authorship of a report linking smic, Chi­
for things,” he says. n na’s leading chipmaker, with the People’s

009
 The Economist May 8th 2021 United States 39

neighbourhood. My kids go to school here.

We know the perpetrators; we just can’t say
it. Nobody’s offering us protection.”
Kim Gardner, St Louis’s chief prosecu­
tor, agrees, arguing that Missouri does not
give her office adequate resources to pro­
tect or move witnesses. Mr Rosenfeld calls
this “a genuine chicken­and­egg problem.
When overall levels of violence come
down, people become more willing to co­
operate with the police because the neigh­
bourhood is less risky. But how do you
drive down the level of violence? People
have to co­operate with the police.”
As a result, families often see their
loved ones’ killers walk free. Ms Williams
has spoken with other grieving families
who say, “We know where the person is,
but we’re trying to do things the right way.
We don’t want to take street justice, but no­
body is helping us.”
Mistrust, built up over decades, be­
tween the city’s majority­white police
Unsolved murders in St Louis force and the majority­black population of
north St Louis also makes people reluctant
Crime without punishment to come forward. One St Louis­based fbi
agent argues that “failure to handle violent
crime invalidated everything else. Too ma­
ny police officers try to reduce violent
crimes by saying, ’We’ll knock more
ST LOUIS, MISSOURI
heads’.” This agent favours a programme of
America’s homicide rate has declined since the 1990s. So have clearance rates “focused deterrence [and] call­ins”, in
which police bring in young men at risk of

“I try to keep them close,” says Maria

Miller (pictured), holding out her
wrist to display a bracelet composed of tiny
cities all over the country.
This was not always the case. Richard
Rosenfeld, a criminologist at the Universi­
perpetrating or being victims of violent
crime to offer them job training and other
social services, but also to warn them that
framed pictures linked by a gold chain. ty of Missouri­St Louis, notes that up until if they continue on their current path, they
They show her oldest and youngest broth­ the early 1980s homicide­clearance rates in will face serious consequences. The fbi
ers, Larry Miller and Harrol Berry, and her many cities were around 90%. Then, be­ agent says a former police chief deemed
son Courtney Williams. All were murdered ginning in the 1990s, crime of all sorts be­ that plan “too soft”.
in 2014. Mr Miller was stabbed while in pri­ gan to decline—but so did clearance rates. But a strategy like this has worked be­
son; two people have been tried for his Murders within families and marriag­ fore. In the early 2000s, St Louis had more
murder. The killers of Mr Berry and Mr Wil­ es, which are comparatively easy to solve, people and fewer murders (its murder rate
liams, who was shot on a visit home from decreased. Murders involving drugs and in 2003 was less than a quarter of last
college, have never been caught. gangs (in which victims, offenders and year’s), for which Ms Gardner credits an ef­
Sadly, that is not unusual. St Louis is a those with knowledge of the crime might fective anti­gang unit within the police.
violent city, and its homicide unit is over­ all have criminal records, and hence want When the unit made arrests, these were
worked and understaffed. Ideally, a homi­ to avoid the police) came to comprise a “strategic prosecutions of violent individ­
cide detective should be the primary inves­ larger share of all homicides. Those kill­ uals that brought the crime rate down”. The
tigator on no more than five murders per ings are harder to solve, and in any given community trusted the officers, says Ms
year. Heather Taylor, a recently retired ho­ year, when murders rise, clearance rates Gardner, because “they weren’t just put­
micide supervisor in St Louis, said that her tend to fall, suggesting that more murders ting everyone into the system. They would
detectives had as many as 19. stretch police manpower, resulting in few­ help people. If they needed jobs, they’d get
Last year, 262 people were killed in St er clearances. them jobs…They built neighbourhoods of
Louis, giving it a murder rate of 87.2 per What explains the low rates in St Louis? trust.” Political disputes, she said, led to
100,000 people—probably higher than any “Fear,” says Sharon Williams. Her apart­ the unit being disbanded.
other American city. But police in the city ment is festooned with pictures of her old­ When running for office, the city’s new
cleared (meaning, generally, arrested and est son Mikey, an artist and painter shot to mayor, Tishaura Jones, expressed support
charged someone for) just 36% of those ho­ death by young men who mistakenly be­ for focused deterrence, as well as increas­
micides. By contrast, last year police in St lieved he had stolen some guns or drugs. ing investments in job­training and men­
Louis County, just west of the city, closed Ms Williams used to run a gang­abatement tal­health services. She will find eager part­
87% of their murders. As of May 3rd this centre in north St Louis; her son’s funeral ners in women such as Ms Miller and Ms
year, things are looking up, but police have was the 46th she had attended for a young Williams, both of whom have started char­
still closed only 31 of the city’s 68 murders. person killed in the city. In many cases, she ities to advocate for their causes. But she
This problem is not unique to St Louis. explains, just because the murder is offi­ will also doubtless find that many people
Nationally, around two in every five mur­ cially unsolved does not mean the killer is share Ms Miller’s view: “I have completely
ders go unsolved, with troubling conse­ unknown. People say to themselves, “I live lost faith in St Louis city homicide. They
quences for families, neighbourhoods and in this neighbourhood. I work in this don’t care.” n

009
 40 United States The Economist May 8th 2021

Lexington A shad state of affairs

The Potomac river is a more vivid symbol of American history than any of the monuments along it
proximity is as redolent of history as any memorial. The Potomac’s
fishy bounty was one of the earliest and most fabulous New World
discoveries. In 1608 John Smith of the Jamestown colony de­
scribed trying to ladle shad aboard his boat with a frying­pan, so
thick was the river with them. Intercepting the migrating fish, by
brush trap, weir and horse­drawn net, was soon an industry of
continental importance.
Following their native guides (who called the shad “Tatama­
ho”—“Inside­out porcupine”), the Pilgrim Fathers manured their
fields with shad. George Washington’s wealth was based on his
shad fisheries; his troops at Valley Forge were said to have gorged
on the fish. So did William Penn, Thomas Jefferson (born in Shad­
well, Virginia), Abraham Lincoln and so many other great men
that the shad has been called the “founding fish”. In 1823, 110m
pounds of it were harvested from the Potomac. To watch the river
boiling with spawning fish is to connect with that history.
It is also to contemplate a great conservation success, however.
During the 19th century, a time of dam­building, Potomac shad
stocks fell by over 80%. By the 1960s, the river had become so black
with pollution that Lyndon Johnson termed it a “national dis­
grace”. The shad, a species more numerous and formative than the
bison, was almost eradicated from it. Yet this helped spur the

S ince march 12th, when the first hickory shad of the year suc­
cumbed to a sparkly lure, anglers of both sexes, several races
and all sizes have been lining the bank of the Potomac in Washing­
Clean Water Act of 1972, which began a cleanup of America’s rivers.
And that federal law was in turn augmented, along the Potomac
and elsewhere, by local authorities and an army of volunteers.
ton, dc, like salmon­hungry bears. When early­bird attorney an­ In the 1980s and 1990s Washington, Maryland and Virginia
glers leave for the office their spots are taken by mask­wearing closed their shad fisheries and cut a fish­passage through the Lit­
housewives from Bethesda. Frazzled lobbyists (who prefer the riv­ tle Falls dam. Shad roe was later milked from fish caught down­
er to the swamp) silently cast their fluorescent jigs alongside griz­ stream, hatched in Washington’s schools, and millions of fry re­
zled Trump voters from Virginia, and also three­generational His­ leased into the river’s upper stretches. The tactic worked. By the
panic families, with their umbrellas and coolers and music. early 2000s the shoals were recovering so strongly that Potomac
Lexington and his children are sometimes among them. Any shad roe was being carted to other depleted rivers.
fool can catch a shad when the mood takes it. Hence the popularity This success has helped spawn a culture, as well as fish. For
of the fish, a sort of outsized herring that migrates up America’s centuries, individual shad were valued in proportion to their
east­coast rivers to spawn. And the deep, churning three­mile plenitude. The first president fed the fish to his slaves; but he him­
stretch of the Potomac that runs from Fletcher’s Boathouse, at the self preferred to eat beef and angle for trout. Hardly anyone fished
top of Georgetown, to the Little Falls dam is some of the best shad for shad with a rod until the 20th century. Yet the fish’s brush with
water there is. ‘It’s kind of sad,” says Alex Binsted, who caught that extinction has encouraged a new understanding of its qualities.
first hickory and is, at 34, a master angler, “but I’ve caught 95% of Its seminal role in the ecology of east­coast rivers is now mani­
every fish I’ve ever caught right here.” He gestures, as he rows, to a fest—and illustrated by flourishing birdlife wherever it has re­
100­yard stretch of river in front of the boathouse, which has been turned. Its sporting qualities are equally prized.
renting wooden fishing skiffs to Washingtonians since the
mid­19th century and which he now manages. “When the fishing’s Scales of justice
so good here, why go elsewhere?” For shadding greenhorns, it may be enough that when the fish
An osprey and juvenile eagle circle, looking for exhausted fish, chooses to bite, it is hard not to catch. For experts, when and why it
as Mr Binsted noses the boat onto the skirt of the current, where a sometimes snaps at a green dart but not a red one, then vice versa,
line of skiffs are anchored. “Hey Lois!” he calls out to a small before it suddenly stops snapping altogether, is as fascinating as
white­haired woman, a retired patent lawyer who is known as the its fight is daunting. “Look at how it’s using the current!” cries Mr
“shad queen”. This is where the serious fishing takes place, among Binsted respectfully, while tussling with his umpteenth fish (each
Fletcher’s “inner circle”, whose members know shad—where they of which he returns tenderly to the water).
lie and when and how to induce a reluctant bite—almost as well as Henry Thoreau, a great fish lover, predicted the much­abused
each other. “Hey Dad!” Mr Binsted hollers at another boat. Within shad, “armed only with innocence and a just cause”, was “reserved
a minute he is into the first of a dozen silver American shad, the for higher destinies”. He has been proved right. Continent­wide,
biggest of the species, two­to­six pounds of ocean­going muscle. the founding fish is still struggling. But, year­by­year, its recovery
Your columnist, fishing the same lures in the same spot, and so far is continuing on the Potomac and spreading further. Last year the
as he can tell in exactly the same way, draws a blank. shad and other migratory fish were free to swim up the Brandy­
Americans know Washington for its monuments. Yet the cap­ wine Creek in Delaware for the first time in 300 years. The found­
ital’s closeness to nature—on a vast and fecund American scale— ing fish appears to have been saved and at last appreciated. It is a
is far more unusual. Kinshasa, skirted by the turbid Congo river, is story of fruitful co­operation and hopeful progress, emanating
one of the few great riverine cities that compares to it. And this from a city too rarely known for either. n

009
 SPECIAL
REPORT:
The future of banking
→ May 8th 2021
3 Few—or none?
4 Tech change
9 Intangible capital
9 Negative rates
10 Going public
13 Currency wars
14 A new world

a ke s
h r
c tu
tr u
s
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009
 Special report The future of banking The Economist May 8th 2021 3

Fewer—or even none?

Imagine there were no banks—it is possible, says Alice Fulwood

I t is hard to conceive of a world without banks, partly because

they are so visible. Picture the horizon of any big city, and the
skyscrapers in view are usually banks. Commuters emerge from
seen to be likely, can perish for want of money,” wrote Walter Bage­
hot, then editor of The Economist, in his 1873 book “Lombard
Street”. “Yet no idea was more familiar to our ancestors.”
Grand Central station in New York in the shadow of the Park Ave­ The “fractional reserves” that banks hold against their deposits
nue base of JPMorgan Chase. Morgan Stanley looms over Times have another effect, however: to make them inherently unstable
Square; Bank of America over Bryant Park. In London the skyline is institutions. The history of capitalism and of money is thus one of
dominated by odd­shaped towers in the City and Canary Wharf. In relentless economic enrichment, pockmarked by the scars of fre­
Singapore the top floors of the offices of Standard Chartered and quent bank runs and financial crises.
uob house rooftop bars looking out over the entire city. Even in Much has changed about banking since Bagehot’s day. Then the
places like Auckland, Mexico City or Jakarta, the logos adorning biggest banks were in London; now they are in New York, Beijing
the tallest buildings are those of anz, bbva or hsbc. and Tokyo. Technological change means nearly all payments are
The physical dominance of banks symbolises their impor­ settled digitally, rather than with notes or cheques. The banks are
tance. Most people interact with their banks for such mundane also far bigger. The total assets of the world’s biggest 1,000 banks
transactions as buying groceries. Companies pay their workers, were worth some $128trn in 2020, dwarfing annual global gross
suppliers and landlords through banks. Banks are also there for product of $84.5trn.
bigger decisions, such as buying a house or getting a student loan. And yet a world without banks is also visible on the horizon. As
For almost as long as there has been money (whether cowrie never before, their role is under threat from new technology, cap­
shells, gold, banknotes or digital deposits),there have been insti­ ital markets and even the public sector. Central bankers have seen
tutions providing safe storage for it. And for as long as deposit­tak­ tech giants develop quicker and easier payments systems that
ing institutions have existed, their managers have realised how in could pull transactions out of the banking system. They worry that
normal times not all depositors will demand their money back at digital payments may bring about the end of cash. Financial regu­
once. That means they do not have to keep cash on hand for every lation and monetary policy have traditionally operated through
deposit—instead they can use the money to make loans. Thus banks. If this mechanism is lost, they may have to create digital
bankers provide funding for private investment and earn interest central­bank money instead.
for themselves. This was a marvel to classical economists. “We Because technology has disrupted so many industries, its im­
have entirely lost the idea that any undertaking likely to pay, and pact on banking may seem like one more example of a stodgy, un­

009
 4 Special report The future of banking The Economist May 8th 2021

competitive business made obsolete by slick tech firms. But mon­

Banks v big tech
ey and banking aren’t like taxis or newspapers. They make up the
interface between the state and the economy. “The deep architec­
ture of the money­credit system, better known as banking, hasn’t
changed since the 18th century, when Francis Baring began writing
Regime change
about the lender­of­last­resort,” says Sir Paul Tucker, formerly
deputy governor of the Bank of England and now at Harvard.
“Which means it has not, so far, depended on technology at all, be­
Bankers, once the kings of capital, may be dethroned
cause Francis Baring was writing about it with a quill pen.”
by payment platforms
Now a new architecture is emerging that promises a reckoning.
“Economic action cannot, at least in capitalist society, be ex­
plained without taking account of money, and practically all eco­
nomic propositions are relative to the modus operandi of a given
“T he distinctive function of the banker ‘begins as soon as he
uses the money of others’; as long as he uses his own money
he is only a capitalist,” wrote Walter Bagehot in 1873, quoting Ri­
monetary system,” wrote Joseph Schumpeter in 1939. Yet it is pos­ cardo. This distinction may seem outdated. Institutional inves­
sible to see a future in which banks play a smaller role, or even tors (hedge funds, mutual funds, pension funds, private equity)
none at all, with digital money and deposits provided by central all use other people’s money. Yet Ricardo’s point matters.
banks, financial transactions carried out by tech firms and capital Modern institutions are the interface between individuals and
markets providing credit. their capital. Gains (or losses) are returned to individuals. By in­
vesting in this way, people typically deploy their own money, with
Bad change or good? the fund acting as a mere tool. Banks also use deposits, the money
The question is whether such a world is desirable. Banks have ma­ of others, to extend loans. But customers expect to get their depos­
ny flaws. Scores of the unbanked are too poor to afford them. They its back in full: they do not expect to bear the bank’s loan losses in
can be slow and expensive. They often make more money from bad years, nor to reap greater rewards in good ones. It is the banks
trading and fees, not normal banking. Negligent banks can create that take both losses and gains.
boom­and­bust cycles that inflict economic hardship. So it is easy This process may make banks unstable, but it also gives them a
to assume that the sidelining of banks might be just another big advantage in financial services, since deposit­taking and lend­
shackle broken by technological advance. ing are complementary. Banks have as a result become providers
Yet a world without banks poses some problems. Today central of any and all financial services that a client needs, from a credit
banks provide very little to economies. Around 90% of the broad card to a mortgage to investment advice. Yet all these are now un­
money supply is in bank deposits, underpinned by small reserves der threat. The clout of non­bank financial firms is growing, mak­
held with the central bank and an implicit central­bank guarantee. ing the balance­sheets that banks use to support lending less valu­
This makes it easier for central banks to instil confidence in the able. And tech giants are using the competitive power of their plat­
system while still keeping at arm’s length from credit. Widely used forms to muscle into banks’ main busi­
central­bank money would bring them nearer the action, causing ness. It is as if the entire industry were in a
their balance­sheets to balloon. This creates risks. pincer grip that might one day kill it.
Banking and capitalism are closely linked. Economists still de­ It is as if the Consider such tech apps as Grab in Sin­
bate why Britain industrialised first, but it is hard to read Bagehot entire industry gapore or Gojek in Indonesia, which both
and not conclude that the alchemy of banks turning idle deposits started as ride­hailing services, or Mercado
into engines for investment played a part. The question is what
were in a pincer Pago, the financial arm of MercadoLibre,
happens if central banks play a bigger role instead. It might be pos­ grip that might Latin America’s largest e­commerce site.
sible for them to avoid actually distributing loans, but it is hard to one day kill it Their model of financial services starts by
see how they could avoid some interference in credit markets. being a dominant provider of a service that
There are broader social risks as well. Banking is fragmented, customers use daily. The most advanced
with three or four big banks in most countries, plus lots of smaller examples are AliPay and WeChat Pay in China. Ant Group, the fi­
ones. But state­issued digital currencies and private payments nancial offspring of Alibaba, was born out of the fact that shoppers
platforms benefit from network effects, potentially concentrating flocking to Alibaba lacked a safe payment method. Alipay was ini­
power in one or two institutions. This could give governments, or tially just an escrow account to transfer money to sellers after buy­
a few private bosses, a wealth of information about citizens. It ers had received their goods, but it was soon launched as an app
would also make the institutions a lot more vulnerable. A cyber­ for mobile use. In 2011 it introduced qr codes for payments, which
attack on the American financial system that closed JPMorgan are trivially easy to generate. Now a shop owner need only display
Chase for a time would be distressing. A similar attack that shut the code to accept money.
down a Federal Reserve digital currency could be devastating. And This means of payment proliferated, supercharging Alipay’s
there is the potential use of money for social control. Cash is not growth. It has more than 1bn active users and handled $16trn in
traceable, but digital money leaves a trail. Exclusively digital mon­ payments in 2019, nearly 25 times more than PayPal, the biggest
ey can be programmed, restricting its use. This has benign impli­ online­payment platform outside China. A competitor arrived in
cations: food stamps could be better targeted or stimulus spend­ 2013 with Tencent, which added a payment function to WeChat,
ing made more effective. But it also has worrying ones: digital China’s main messaging app. Together the two process some 90%
money could be programmed to stop it being used to pay for abor­ of mobile transactions in China.
tions or to buy books from abroad. The first blow to banks is that both companies earn as little as
The scope of the issues this special report will consider is vast. 0.1% of each transaction, less than banks do from debit cards. In­
It includes the role of the state in credit provision, the concentra­ terchange fees around the world have tumbled because of such
tion of power in tech firms or governments, the potential for so­ firms. “It was very lucrative for fintechs to come in and compete
cial control and the risk of new forms of warfare. A world without these fees away,” says Aakash Rawat of the bank ubs. “In Indonesia
banks may sound to many like a dream. But it could turn out to be they have fallen from 200 basis points to just 70.” But the bigger
more like a nightmare. n threat is that payment platforms may become a gateway allowing

009
 The Economist May 8th 2021 Special report The future of banking 5

and other financial products, like asset

management and insurance. Ant muscled
into asset management in 2013 with the
launch of Yu’e Bao, where shoppers with
cash in Alipay earn a small return by park­
ing it in a money­market fund. In 2019 Yu’e
Bao briefly became the world’s biggest
money­market fund by size, before the
central bank put pressure on Ant to shrink
it. Ant supplemented this with other in­
vestment options and also expanded into
life, car and health insurance in partner­
ship with other firms.
Tech firms are using their platforms to
reverse­engineer banking. This has even
caught on in America, where credit­card
sweeteners keep users hooked and pay­
ments tech has lagged. Enthusiasm for
payment platforms has accelerated during
the covid­19 pandemic, which forced shop­
pers online. PayPal has almost doubled in
market value over the past year to more
than $310bn, making it the world’s most
valuable payment platform.
Stripe, a business­payment provider, is
now valued at $95bn, making it the largest
private tech company in America. Stripe’s
success as a business platform suggests it
is not just retail banking that might be un­
der threat, but corporate banking as well.
The firm won favour with tiny businesses
by making it easier to embed payments in
their websites. It has expanded into pay­
roll and cash­management services.

Knowledge can be power

Such platforms cannot do everything a
bank does, because they do not have a bal­
ance­sheet to sustain lending. A bank’s ad­
vantage lies in having deposits to exploit,
even if they do not know whom they
should lend them to. Tech firms’ advantage
is that they know whom to lend to, even if
tech platforms to attract more users. Using data that payment they do not have the funds. So some platforms have decided they
transactions provide, Ant, Grab and Tencent can determine a bor­ would like a balance­sheet. Grab, which is about to go public at a
rower’s creditworthiness. Ant began consumer lending only in valuation of some $40bn, has acquired a banking licence. If many
2014. By 2020 it had already grown to account for about a tenth of others took this path banks might remain at the heart of the finan­
the consumer­finance market in China, though regulators are cial system, though the biggest could be Ant, Grab or Mercado Pa­
now reining it in. go, not hsbc, dbs or Santander Brasil.
Banks have traditional ways to assess borrowers’ creditworthi­ But most tech firms have opted against banking licences. They
ness, such as credit history or current wealth. Often they secure are instead skimming the cream off the top. “Core banking”, the
loans against collateral, like homes or cars, minimising the need heavily regulated, capital­intensive activity of banks, makes
to monitor an individual borrower. Bob Hope, a comedian, around $3trn in revenue worldwide, and generates a 5­6% return
quipped that “a bank is a place that will lend you money if you can on equity (roe). Payments and product distribution, the business
prove that you don’t need it.” of the tech firms, yields $2.5trn in sales but with a roe of 20%.
Yet as Agustín Carstens, boss of the Bank for International Set­ Ant initially made loans and packaged them as securities sold
tlements, a club of central bankers, said in March, “Data can sub­ to other financial institutions. But Jack Ma, its founder, fell foul of
stitute for collateral.” The information that payment platforms the government and regulators. So they demanded that origina­
have on users is so plentiful and, until recent crackdowns, the re­ tors of securities hold capital against them, trimming Ant’s mar­
strictions so lax in China, that Markus Brunnermeier, of Princeton gins. The firm’s next approach was to act as a conduit, connecting
University, talks of “an inverse of the information asymmetry”, in borrowers with banks, which made the loans. But regulators wor­
which lenders know more about whether borrowers will repay ried that Ant had too little skin in the game, so demanded it hold
than borrowers themselves. Big tech and fintech firms have lent more capital. Ant must now rethink its business model.
$450 per head in China, around 2% of total credit, in five years. Banks are not the only institutions that may bid for loans or se­
As banks found decades ago, there are synergies between loans curities that tech platforms want to flog. The balance of power has

009
 Fighting MS
through innovation
Investing in innovative treatments is vital to
alleviate the suffering caused by multiple sclerosis

Amid the coronavirus pandemic, concern has grown over account for €1.4bn, half the annual cost. Medical costs
the potential neglect of other serious diseases. Multiple make up the other 50%.
sclerosis (MS), for example, is a condition for which
Proportions of parttime worker survey population
timely diagnosis, early treatment and the development compared to the overall emp rench population
of innovative therapies are particularly important for 47,61%
reducing the disabling progress of the disease.
37%
MS is the most common auto-immune disorder to affect
the central nervous system - that is, the brain and spinal 25% 23,90%
cord. In many patients, the symptoms cause serious 21,30%
distress, increasingly diminishing their quality of life as 15,60%
their disability worsens. The average age of onset is 30,
with a strong female preponderance.

Symptoms commonly include nerve inflammation, Under 25 25-49 yo Over 50

double vision, sensory loss, weak limbs, fatigue, difficulty Share of parttime workers in the survey population
in walking, and cognitive dysfunction. After traffic Share of parttime workers in the employed French population
accidents, MS is the leading cause of disability in young
adults globally (European MS platform). This study was conducted using an innovative
medical device that helps patients and physicians
Social costs monitor the disease. MS Copilot®, which can be
The debilitating symptoms and progressive nature of downloaded to a smart phone, was developed by Ad
MS result in a significant economic burden on patients Scientiam, a French start-up in collaboration with
and their families, even those with a low level of patient advocacy groups and a panel of medical
physical disability. experts.

In addition to the suffering and economic burden for The study showed how MS affects employment,
patients and caregivers, MS has a significant impact on either by forcing patients out of work or by reducing
society as a whole. A recent study conducted in France the amount of time they can spend at their jobs. The
in 2021, for example, calculated that the global cost of disease was also shown to reduce the time people
the disease to the country reached €2.8bn a year. The caring for MS patients were able to work. People
costs of lost working time and income for patients, living with MS are much more likely to work parttime
caregivers and employers, together with the payment than the average worker and many also retire early,
of state benefits and costs to insurance companies the study found - in France about 1,800 patients

009
 Percentages of employed patients
having reduced their worktime
because of MS according to disease
severity

leave the labour ly every year. About 75% of

them take sick lea ge for 30 days. Severe (EDSS 7 to 9) 75%

The study showe patients pay an average of Moderate (EDSS 4 to 6) 53%

€1,000 a year in ket expenses not covered
by health insura ding purchasing mobility Mild (EDSS 1 to 3) 30%
equipment and adapting vehicles. One in five patients
had to forego medical care or was unable to purchase
equipment because of a lack of means. “More than a Easing the burden
million people in Europe are living with multiple sclerosis, As the landscape of MS treatment evolves, there is a
a chronic with severe impact on patients’ lives pressing need to make the best use of innovations like
and their f ” says Janneke Van Der Kamp, Region these. “As part of our journey to reimagine medicine,
Europe He Novartis Pharmaceuticals. “The social by providing medical innovations and supporting
burden of sease is significant, as shown in this health care systems, our aim is to help improve the
study, and ration between all actors in the health management of the disease and the quality of life of
care ecosy needed to accelerate diagnosis and people living with MS,” says Mrs Van Der Kamp.
treatment and improve care.”
The coronavirus pandemic has highlighted the
Innovation milestones vulnerability of patients with chronic diseases such as
A recent Spanish study found that an investment of MS and the need to address with even greater attention
€148m in implementing a set of proposals rove issues that, among other benefits, can help reduce
management of MS in the Spanish national he rvice hospital overloads. These include:
would have a social return equivalent to €27 he 18
proposals include faster access to magnetic ance • vaccinating MS patients against Covid-19, a measure
imaging (MRI) exams, and improving c ation that has already been prioritised in Spain
between primary care doctors and neurolo Every • continuing efforts to ensure detection of early
euro invested in these measures, the study found, would symptoms and patient follow-up
yield a social return of €2 (Moral Torres et al. 2020). • leveraging digital technologies for disease monitoring.

Over the past decade, important milestones have been Digital tools such as MSCopilot® can provide vital
reached in improving the quality of life of MS patients, support. “We help patients keep track of their disease
mainly by developing innovative treatment therapies between consultations,” says Dr Saad Zinaï, Chief
that reduce the progression of disability. For science to Medical Officer at Ad Scientiam. “Our software medical
continue to evolve and for advances like these to continue device provides a more objective picture of the disease
to be made available to patients, it is vital to continue and supports physicians in their treatment decisions.
investing in areas including: Ultimately, it might help them alleviate the patients’
burden.”
• timely diagnosis and access to advanced imaging devices
• using innovative therapies early in the course of the While Covid-19 has clearly highlighted the impact that
disease to improve short- and long-term outcomes outbreaks of acute disease can have on the global
for people living with MS economy, it is important not to forget the burden that
• improving disease monitoring and diagnosis chronic diseases like MS continue to impose on patients
and society, and the constant need to invest in medical
“There is no trade-off between economics and health. advances that can improve patient outcomes and their
This is true for multiple sclerosis as it is for Covid-19. quality of life.
When we allow these diseases to develop, we weaken
the economy. When we invest in vaccines or treatments,
we are, on the contrary, giving ourselves the means to
unleash new potential for growth and progress,” says
Nicolas Bouzou, an economist and founder of ASTERES
consulting company. www.novartis.com

009
 8 Special report The future of banking The Economist May 8th 2021

bank accounts, has helped provide cheaper access to financial ser­

Money out of the bank vices for millions of people. Between 2014 and 2018, 315m previ­
World ously unbanked Indians have opened accounts, depositing more
than 800bn rupees ($12bn), and received 237m debit cards.
Non-bank financial institutions as Financial assets by sector, Most non­banks do not undertake the maturity and liquidity
% of total global financial assets $trn transformation that makes banks vulnerable to runs. According to
50 400 the fsb, 29% of the $200trn in assets held by non­bank financial
Public financial institutions take risks typical of banks, though the share is grow­
institutions 300 ing. Most assets are held in investment funds that promise more
45
Central banks liquidity. They try to match maturities: a pension fund paying re­
Banks
200 tirement income in 30 years is happy to lock its money up in a
40
private­equity fund for a decade or more.
100 The triumph of these competitors brings clear benefits, but al­
35 Non-bank financial so some risks. There are economies of scale for both banks and
institutions 0 tech firms. Big banks spread the fixed costs of branches and mar­
2002 05 10 15 19 2002 05 10 15 19 keting over many customers. Payment platforms spread costs over
Source: Financial Stability Board many users. The value proposition for a customer to join a bank
scales with size. A bank can offer cheaper products because it has
lots of customers. Yet the value proposition for a payment plat­
shifted towards non­banks. According to the Financial Stability form grows exponentially with the network, as each new user
Board (fsb), a group of regulators, the capitalists are often bigger makes the system more valuable.
players. In 2007 global assets of non­bank financial firms stood at Regulators often complain about concentration in the Ameri­
$100trn, equivalent to 172% of gross world output and 46% of total can banking system, but there are four large banks and thousands
assets. In 2019 these assets, at $200trn, constituted 228% of gross of smaller ones. Payment platforms’ comparative advantage
world output and half of the total. “The banking system is smaller, makes these businesses more likely to reach a winner­take­all end
as a share of finance, than it was before,” notes Jamie Dimon, boss state (rather like Facebook).
of JPMorgan Chase.
Banks still dominate the holding of credit and lending assets. Tech monopolies
Just shy of 40% of all credit assets, including securities and loans, Today’s debate over technological monopolists focuses on inter­
are held by non­banks, though their share is growing fast. It rose operability, particularly of user data. If online behaviour were able
by nearly 9% in 2019, whereas banks’ credit assets grew by just to uncover helpful information about whether a customer quali­
4.6%. Yet banks remain the largest source of specific loans, hold­ fies for a loan, it would be more useful if it could be accessed by all
ing 83% of global lending assets at the end of 2019. potential financial providers. The idea of sharing data in this way,
The switch is most obvious in America, which has a history of called “open banking”, has already been embraced by regulators in
capital­market growth as far back as the 1940s, when the pots of Europe. Another concern could be that platforms might exploit
money raised by mutual­fund managers swelled. The 1980s their market dominance to create silos that made it easy to do
brought a rush of debt issuance, especially of junk bonds, by com­ things within a platform, but well­nigh impossible to use stored
panies. And there was a boom in household debt via securitisa­ money elsewhere.
tion, the bundling of loans into bonds that can be bought and sold. Regulators in China have turned sharply against its fintech
Yet nervousness about securitisation after the financial crash giants. Ant’s troubles began last November when they kiboshed its
means that now, in America, just 20% of financial assets are on initial public offering. The firm and its peers are now being forced
banks’ balance­sheets. to retract some credit products, to obtain new business licences
Other countries are following America, not least because regu­ and to raise more capital—in short to look and act more like a tra­
lators want banks to reduce their holdings of risky assets. In the ditional bank. In Europe regulators are similarly nervous. “The au­
euro area, the share of financial assets held by banks fell from thorities are facing the prospect that an increasing amount of data
around 60% of the total in 2007 to below 40% in 2019. Much of the will be collected through payments for other use,” says Jean­Pierre
world still has a long way to go. “In emerging markets, it is a differ­ Landau, a former deputy governor of the Banque de France. “Then
ent story. They are very bank­dependent with very limited capital it becomes impossible to think of the organisation of payments
markets. Some of their capital markets are still in their infancy,” separately from data priorities, which in Europe are focused on
says Carmen Reinhart, chief economist at the World Bank. protecting the privacy of individuals.”
The rise of tech firms and capital markets is mostly good news. The risks from the rise of capital markets are different. It may
Access to banks can be costly. Some 7m households in America are be that bank balance­sheets will fund a smaller share of lending in
unbanked, relying on cheque­cashing firms, pawn shops and pay­ future, but as banks are the only institutions that can take deposits
day lenders. Credit and debit cards levy fees of 1­4% on merchants, their role would not disappear. Yet the arrival of a wider range of
which are remitted to the rich via air miles participants makes life harder for regulators. In 2007­09 the Fed­
and credit­card points. This means that eral Reserve intervened in capital markets, but went to much
the average cash­using household in ef­ greater lengths to prop up commercial and investment banks. In
fect pays $149 over a year to card users, and Fragmentation to March 2020, banks went unscathed when capital markets seized
each card­using household receives $1,133 a wider range of up. Rather than acting as lender­of­last­resort only to banks, the
from cash users, partly in the form of re­ Fed became market­maker of last resort, intervening directly in
participants
wards, said a paper in 2010 by economists credit markets. The scale of this quantitative easing, to the tune of
at the Federal Reserve Bank of Boston. makes life harder $23.5 trn, surpasses any other in the Fed’s history. Such efforts to
New payment systems are also easier to for regulators stabilise financial markets make it harder for the Fed to avoid
use. upi in India, which links mobile­ picking winners and influencing credit. As the world changes,
phone numbers to biometric data and regulators’ toolkit will have to adapt. n

009
 The Economist May 8th 2021 Special report The future of banking 9

The risk of losing all was too great for bankers, who refused to
Debt v equity
lend money to whalers. So a new breed, the whaling agent,
stepped in to provide captains with capital in return for a share of
Intangible capitalism profits. Although stakes in many voyages might be lost they
spread the capital so that one successful voyage made up for it.
This model was an oddity in the 1800s, but the trade­off will sound
familiar to venture capitalists today. In their business low­proba­
bility, high­pay­off outcomes are the “allure of the long tail”. Ven­
ture capitalists fund startups by investing in a broad portfolio in
Why bankers are scarce in Silicon Valley
hopes of finding the next Google or Amazon.

T o understand what was a risky venture in 19th­century

America, visit the Whaling Museum in Nantucket. The indus­
try thrived on this Massachusetts island, now transformed from
The difference between whaling agents of 19th century New
England and today’s venture capitalists is their importance. Even
at its peak in the 1850s, whaling contributed only 1.7% of American
an outpost for coarse sailors into a swanky beach spot. Two centu­ industrial output. Bankers financed the behemoths such as rail­
ries ago, whales were valuable because of the lucrative oil in their roads, manufacturers and farmers. The first recognisable venture­
head­cases. Captains amassed fleets of sloops and dozens of men capital fund, ard in Boston, was created in 1946, but its successors
armed with harpoons to hunt them. For lucky crews that found loom much larger. Just shy of half all listed American companies
their “white whales” the rewards were enormous, but so were the were once venture­backed. The ascent of venture capital has
risks of losing ships and souls in the hunt. In “Moby Dick” Herman come, in some ways, at the expense of other financiers. Bankers
Melville admonishes the reader: “for God’s sake, be economical are conspicuous by their absence in Silicon Valley.
with your lamps and candles! Not a gallon you burn, but at least Why has venture capital boomed? One theory, posited in “Cap­
one drop of man’s blood was spilled for it.” italism without Capital” by Jonathan Haskel, at Imperial College

Time is cheap
Banks do less banking with interest rates at zero

B anking could be called the business

of time travel. When savers deposit
money in a bank, they postpone con­
year when he told his employees to grit
their teeth and charge negative rates to
clients. Bankers across Europe had long
seems universal. Michael Brei, Claudio
Borio and Leonardo Gambacorta, of the
Bank for International Settlements, sam­
sumption. When borrowers take out worried “well, if we do this, we will lose pled the activities of 113 large banks in
loans they pull future consumption the client.” This fear proved unfounded. In mostly rich countries, where interest rates
forward. Banks facilitate this by the the past year, many banks have levied have been lowest. They found that, as rates
magic of interest. When they make loans negative rates on clients, including Deut­ approached zero, banks rebalanced away
and charge interest, or pay interest on sche Bank, which charged them on more from deposit­taking and lending, which
deposits, they are really putting a price than €80bn ($97bn) of deposits. are interest­generating, to intermediation
on time itself. But when interest rates are For most banks a “lower­for­longer” activities that produce fee income. These
zero, or even negative, this trick becomes environment requires other changes. effects were larger over the long term,
much harder to pull off. Starved of net interest income, bankers suggesting it is not just the mechanical
This phenomenon is not new. Interest seek revenue from fees for investment drop in interest income as a share of pro­
rates have trended lower for decades and management or security issuance. “The fits that prompts it, but a deliberate effort
have been below zero in Japan and Eu­ more diversified your set­up the better,” to adjust activity.
rope for half a decade. “We have com­ says Mr Sewing. The impulse to diversify So what if skinny profits irk the bank­
plained for years about the low interest­ ers? The problem is that their troubles can
rate environment, and I cannot hear that cause difficulties for everybody else. As
any more”, says Christian Sewing, boss of Down, down bank margins are compressed, their cap­
Deutsche Bank in Germany. “This is a Ten-year government-bond yields, % ital is often eroded, which can stymie
new normal.” 18 banks’ ability to lend. Economists have
France
In the short term low interest rates long worried that these dynamics conflict
can be a boon for profits by stimulating 15 with monetary policy at the lower bound.
an economy and pushing up asset prices, Britain Italy
12 Cutting interest rates is supposed to stim­
both of which boost banks. But persis­ ulate lending, not curtail it. Markus Brun­
tently low interest rates are a thorn in 9 nermeier, at Princeton, and Yann Koby at
bankers’ side, as they are associated with 6 Brown, call the interest rate below which a
lower net interest income. It can be hard further rate cut has depressive effects the
for banks to pass low deposit rates on as 3 “reversal rate”. And they find that the
interest rates decline, but they must United States Japan effects are exacerbated where capital
0
often lower rates on loans. constraints are tight, penalising the big
Mr Sewing understands this well. -3 banks, and in countries engaging in quan­
Although policy rates in Europe have 1953 60 70 80 90 2000 10 21 titative easing, which forces banks to hold
been negative since 2014, it was only last Source: OECD even more deposits.

009
 10 Special report The future of banking The Economist May 8th 2021

London and Stian Westlake, a researcher at Nesta, a think­tank,

Public v private money
begins with the shift in how businesses invest. Firms once mostly
invested in physical stuff (“tangible capital”) like railroads, equip­
ment, vehicles or machinery to make things. Now they increas­
ingly invest in research, branding and software (“intangible capi­
Going public
tal”) to produce intellectual property. According to data from Lee
Branstetter of the Peterson Institute for International Economics
and Dan Sichel of Wellesley College, 13­14% of the output of busi­
nesses in1980 was invested in tangible assets and just 9% in intan­
Will banks survive the transition to a new monetary system?
gible assets. By the mid­2010s these shares had switched: around
14% was spent on intangibles, and 9% on tangibles.
The rise of intangible capital may explain several capital­mar­
ket trends, including the fact that private firms are tending to stay
E agle-eyed beachcombers may recognise the round white
shells etched with a five­petal flower. These erstwhile homes
of sea urchins resemble a silver dollar, earning them the nickname
private for longer and the popularity of mergers. Software compa­ “sand dollars” and the myth that they are the money of mermaids
nies find it easier to protect intellectual property in private mar­ or the long­lost city of Atlantis. They pile up on the shores of the
kets. Rigid accounting rules do not cope well with intangible cap­ 700 islands in the Bahamas, so its central bank picked the sand
ital, for instance by mostly booking spending on research as an ex­ dollar as its logo. In October 2020, when the Bahamas launched
pense, discouraging it. the world’s first central­bank digital currency (cbdc), the authori­
The shift has other broad implications. Lenders like collateral: ties chose to adorn the app with the familiar floral pattern and call
whenever financiers make loans they worry about being repaid, it the sand dollar.
but they can take valuable property in case of default. Most con­ cbdcs are a digital version of cash—the physical money issued
sumer lending is secured against houses or cars. But businesses by central banks. In most countries, their design will resemble ex­
that create intangible assets do not have such collateral. This can isting online platforms, but with a difference: money held as a
make it harder to secure debt­financing, which is often not avail­ cbdc is equivalent to a deposit with the central bank. In China
able unsecured for new businesses at a reasonable rate. Stephen more than 100,000 people have downloaded a similar trial mo­
Cecchetti, an economist at Brandeis University, calls this the “ty­ bile­phone app, enabling them to spend small government hand­
ranny of collateral”. outs of digital cash, or “e­yuan”. The app, like the paper yuan, de­
American software firms have debt worth just 10% of equity. By picts Mao Zedong. European officials want to launch a digital euro
contrast restaurants often have debt worth 95% of their assets. by 2025. On April 19th the Bank of England and the British Treasury
Tech firms frequently rely on seed funding and venture capi­ launched a taskforce to consider the idea. In America the Fed is al­
tal. This cannot be explained solely by a lack of demand: the tech so looking into it. A survey by the Bank for International Settle­
firms might like to borrow if they could. “The companies that we ments finds a large majority of central banks researching or ex­
are talking to today believe their valuations will be a lot higher perimenting with cbdcs. They may be in use by countries with a
next year,” says Scott Bluestein, boss of Hercules Capital, which fifth of the world’s population in as little as three years’ time.
lends to software and biotech firms. “If they can use structured Until recently the concept of a retail cbdc was the province
debt to get there without having to raise equity, they can limit a solely of starry­eyed economists, an interesting but impractical
significant amount of dilution, which can be very valuable for idea. But “in just two years we have seen a dramatic change in the
management and early investors.” way people and authorities think and talk about money,” says
Some niche lenders manage. “We do lend secured,” says Greg Jean­Pierre Landau, a former deputy governor of the Banque de
Becker, boss of Silicon Valley Bank in Santa Clara. “We are often se­ France. “I cannot think—in peacetime and outside of a crisis—of a
cured by intellectual property which, for a software company, is recent period where so much has changed in the way people think
their ability to generate revenue from code.” This comes with oth­ about money.”
er risks. “We will take losses in situations where software once had What has prompted the shift? Mr Landau thinks it was “the
value, but the industry was disrupted in a way that it no longer wake­up call that Libra represented.” Libra was the first name for a
does. That is just harder for traditional banks to get their arms digital currency and payments network announced in June 2019
around versus hard assets.” Most banks are less flexible. n by Facebook, which planned to issue tokens backed by a basket of
currencies. “This was a real shock for most of the international
monetary community,” says Mr Landau. A second driver was the
decline in the use of cash. If cash can no longer be used for trans­
Out of touch actions it loses much potency, as it has to be a means of exchange
United States, business investment as % of output* if it is to be a store of value.
16 Yet it is still a radical intervention to issue cbdcs, which threat­
en the traditional banking system. This underpins much lending,
Intangible
14 especially in poorer countries, so its displacement could under­
investments† mine the provision of credit. For two centuries most monetary
12
systems have relied on the framework of a lender­of­last­resort in
10 the form of a government­backed body that can step in to save sol­
vent financial institutions. The modern iteration of this is an in­
Tangible 8 dependent central bank. It provides money both in cash and by
investments‡ creating bank reserves (cash deposits that banks hold with it).
6
The private bits of the monetary system are the banks. They
provide banking services by collecting deposits and making loans.
1977 80 85 90 95 2000 05 10 15 17
By holding only a portion of these deposits and lending the rest,
*Non-residential business investment as a share of gross value-added
†Non-scientific research & development, branding, training ‡Physical assets, machinery and equipment banks create money: the original deposits remain ready to be
Source: Corrado and Hulten (2010), INTAN-Invest called on in full, but there are now new deposits from the proceeds

009
 The Economist May 8th 2021 Special report The future of banking 11

of the loans. All deposits can be used as money to make payments. threaten the usual channels for monetary policy, which run
But the new money is created by the mere stroke of bankers’ pens. through the banks. “It really depends on what happens with re­
“The process by which banks make money is so simple that the gard to digital payments and whether those are entirely outside
mind is repelled,” wrote J.K. Galbraith in 1975. “Where something the banking system,” says one senior central banker. “To the ex­
so important is involved only a deeper mystery seems decent.” tent that they are, I think that would create a real gap in terms of
The discovery that banks could create money “came early in the monetary­policy transmission. If digital payments are entirely
development of banking,” said Galbraith. “There was that interest done within the banking system, then the monetary­policy trans­
to be earned. Where such reward is waiting men have a natural in­ mission mechanism would be retained, but I do not think that is
stinct for innovation.” Most money is created by banks. In Ameri­ the world we are headed into.”
ca the quantity of broad money stayed the same as a share of gdp The redundancy of cash makes matters worse. Cash is the saf­
for 100 years (though the pandemic spurred a dash for cash). Some est form of money. “Confidence in the system rests on the ability
90% of it is in private bank deposits. In other economies the share of the holder to transfer their money into the safest asset, even
is higher: 91% in the euro area, 93% in Japan and 97% in Britain. though they may never do that. The fact that they know they can
This system has flaws. Because loans are long­term illiquid as­ just anchors the whole system,” says Sir Jon Cunliffe, deputy go­
sets, whereas deposits are short­term liquid liabilities, banks vernor of the Bank of England. “When stress really comes the
need a lender­of­last­resort in a crisis. This creates other concerns knowledge that they could is what matters.”
because it fosters moral hazard through greater risk­taking. Regu­ The hard truth is that monetary authorities have long felt unea­
lators may try to curb this through prudential oversight, but this sy about the weaknesses of banks. These include the share of peo­
has not always worked. ple that are unbanked, even in rich countries, the high costs of
Facebook threatened all this, with its huge network of users po­ payment methods and the inordinate cost of cross­border tran­
tentially meaning that more than 2bn people could adopt a new sactions (which eats into remittances to poorer countries). The
currency. This made Libra instantly credible as a medium of ex­ appeal of a cheaper, seamless system has accelerated faster pay­
change. Its network would have been cross­border. And in its orig­ ment projects around the world. These include the FedNow sys­
inal incarnation it would have introduced a new unit of account. tem, a real­time payment system for America due to enter into use
This raised the prospect of citizens using currencies over which in 2023.
central banks had no control. Regulatory authorities duly resisted Both fear and opportunity are key motivators for the Bahamas.
the idea. It has now been reimagined as Diem, pegged 1­for­1 with It would be easy to envisage residents relying exclusively on a con­
global currencies such as the dollar or euro. In the cryptocurrency venient currency like Diem, circumventing the ability of the cen­
world such tokens are called stablecoins. Diem has yet to launch, tral bank to regulate the money supply. “We want to provide an in­
but “even if that project never sees the light of day it has changed frastructure in a very small country that may not be justified on
the world dramatically,” says Mr Landau. just business considerations if left entirely up to the financial in­
Parallel payment systems, especially supra­sovereign ones, stitutions and individuals,” said John Rolle, governor of the Baha­

009
 12 Special report The future of banking The Economist May 8th 2021

mian central bank, in March. Because of its scattered island geog­ quidity and maturity transformation is as useful as many claim, “I
raphy, the Bahamas has many remote communities with limited think you would just find it replicated elsewhere,” says Peter Fish­
access to banking services. er of Tuck School of Business at Dartmouth. And in such a case the
Central­bank wallet apps may not sound revolutionary, but the central bank could find itself in the position of having to intervene
idea of a central bank providing digital money directly to citizens in all sorts of institutions other than banks.
is radical. If citizens can convert bank deposits into central­bank Although other institutions could lend to businesses and
money with a simple swipe, the technology “has the potential to households, they could not promise to do so instantly. “The key
be run­accelerant,” said Lael Brainard, a Federal Reserve governor, credit facility is an on­demand facility or an overdraft facility. I am
in 2019. This could pull deposits out of the banking system and on­ running a small business and I might need more working capital
to the central bank’s balance­sheet, disintermediating the banks. right now!” notes Sir Paul. Businesses now get this from banks,
which offer it because they make money. “Because they can create
Enter the bigger central bank money instantly, they can provide liquidity via credit facilities in­
This might not be a problem if take­up of cbdcs were low. Bank de­ stantly. A pension or other fund cannot do that. For them it is re­
posits in America are worth $16.8trn. Banks hold more reserves sources in, resources out,” he says.
with the Fed than they need, an excess of around $3.3trn. Any ini­ With diminished or no banks, it is hard to see how firms would
tial movement of deposits from a bank to the Fed would come retain access to immediate credit in times of crisis—as they did in
from these. “You could get a significant amount of migration to March 2020, when corporate treasurers across America drew
the Fed in the current high­reserve environment really without af­ down billions of dollars­worth of credit lines overnight. That is
fecting bank lending,” says Morgan Ricks, of Vanderbilt University the superpower of banks. In their absence the role of the central
in Nashville, Tennessee. bank would have to swell further.
One idea proposed by researchers at the Bank of England and Mervyn King, a former governor of the Bank of England, has
the European Central Bank is to limit how much can be held in a proposed that central banks should lend, with various haircuts, to
cbdc. But Sir Paul Tucker, formerly at the Bank of England, sug­ anyone who could supply collateral, a “pawnbroker for all sea­
gests this would face a credibility hurdle. “The hardest thing for sons” to replace the lender­of­last­resort. But existing collateral
the government or the state generally is to stick to a commitment systems have become fraught with complexity. Europe has a col­
of restraint.” lateral framework to enable refinancing operations. “This system
If cbdcs proved popular, they could suck all deposits out of the told you what you could post and what the
banking system. In America this would stretch the central bank’s haircuts were,” says Stephen Cecchetti, of
balance­sheet from $8trn to a whopping $21.5trn. Who, then, Brandeis University. “Over the past 15 years
would provide the $15trn of loans that banks now extend to the The idea of a it has anywhere from 25,000­30,000 secu­
American economy? Perhaps a central bank could simply pass the central bank rities in it, many of which were fabricated
funds back to the banks by lending at its policy interest rate. But it in order to actually meet the requirements
providing digital
is hard to see the idea of the Federal Reserve extending trillion­ of the collateral policy.” It stretched to in­
dollar loans to the likes of JPMorgan Chase or Bank of America as money directly to clude many things. “At one point, some­
being politically uncontroversial. citizens is radical where deep inside, there was a security
A radically different world, at least in rich countries, would that included Lionel Messi’s contract.”
eliminate fractional­reserve banks as the source of most or even Mr Cecchetti argues that no central
all lending. “Narrow banking” is the name for the idea that banks bank could cope with such variety, with securities in different
should be required to hold sufficient liquid assets to back all their buckets, each with a discount to their market value. “Collateral
deposits. It was put forward in 1933 as the “Chicago Plan”, after the systems can end up distorting the price of credit. This could be­
devastation of the Depression. It would end the system of frac­ come a concern with a pawnbroker system.” Sir Paul thinks that
tional­reserve banking by breaking the link between the exten­ “Deep in the political economy of the money and credit architec­
sion of credit and the creation of money. As the monetary theorist ture there is a choice.” The choice most countries have made is to
Irving Fisher summed up the idea: “In short: nationalise money have fractional­reserve banks. “We choose, as a society, to have the
but do not nationalise banking.” financial­stability problem (which becomes an urgent priority) in
The appeal of narrow banking has continued, with support for order to keep the state out of or minimise the role of the state in
the concept coming from the likes of Milton Friedman, James To­ credit allocation,” he says.
bin and Hyman Minsky. The idea of cbdcs has led to a further re­ The provision of easier direct access to central banks, through
vival. Yet beyond the problem of transitioning from one system to cbdcs, is likely to pull more assets into the central bank. It is hard
another, narrow banking has its own difficulties. What banks do to see how this does not lead to more central­bank intervention in
with fractional reserves is to turn short­term liquid funds into credit. And keeping distance between the state and credit alloca­
long­term illiquid loans. Deposits are not much good sitting idle, tion in a world without banks is only the start. “The three biggest
but they are when used as the basis for riskier lending. The bene­ problems I have [with cbdcs] are disintermediation of the bank­
fits of linking savers, who prefer safety and liquidity, with borrow­ ing system, privacy and currency substitution across borders,”
ers, who like flexibility and security, are enormous. says Mr Cecchetti. “China has fewer concerns about privacy, they
Joseph Schumpeter wrote in the 1930s that it was “one of the have state­owned banks, and they have capital controls.”
most characteristic features of the financial side of the capitalist The magnitude of these issues make the idea of introducing
evolution to ‘mobilise’ all, even the longest maturities” so that cbdcs one that central bankers cannot decide by themselves. Nor
they are financed by short­term borrowing. “This is not mere tech­ do they believe they should. “The bottom line is that to move for­
nique. This is part of the core of the capitalist process.” Banks lib­ ward on this we would need buy­in from Congress, from the ad­
erate innovation and investment, the engines of Schumpeter’s ministration, from broad elements of the public,” said Jerome
creative destruction, from the “voluntary abstinence routine of Powell, the Fed chairman, in March. “That would ideally come in
the savers.” the form of an authorising law, rather than us trying to interpret
If authorities were to curb liquidity and maturity transforma­ our existing law to enable this.” A new era of public money would,
tion through narrow banking, they might damage growth. But if li­ in short, require public approval. n

009
 The Economist May 8th 2021 Special report The future of banking 13

nancial markets and trade have grown faster than the global econ­
omy for decades, making the dollar ever more dominant. This
gives America a clout it exploits through its use of sanctions, as
well as unrivalled insight into global finance.
It is hard to see all this giving way to the yuan. But the way a
transition could start, says Jean­Pierre Landau, formerly at the
Banque de France, is with tourists. “If you have hundreds of mil­
lions of tourists moving around South­East Asia, asking to use
their Alipay and attracting more attention to the app then, per­
haps, progressively, they might want to denominate transactions
in yuan.” First knick­knacks and museum tickets are sold in yuan.
Then businesses start invoicing trade in the Chinese currency.
Eventually they write financial contracts in it.
Digital money could thus threaten dollar hegemony. But the
motive of many places, including China, for issuing their own dig­
ital currencies are mainly defensive. China is resisting the disap­
pearance of public money as cash falls out of use. It is also fighting
the concentration of power in the hands of data­savvy tech firms.
Perhaps digital money will be used to promote a currency, says Mr
Landau, but it can also be a defence against competition from a
digital dollar.
A first reason to create a digital currency is “to protect or safe­
Monetary sovereignty
guard our monetary sovereignty,” said Mu Changchun, the Chi­
nese central bank’s digital­currency boss, in March. He thinks
Hege-money most central banks are keen because they fear a digital dollar.
“Digital currency supplied by one central bank should not impede
another central bank’s ability to carry out its mandate for mone­
tary and financial stability,” he said.
Indeed, if internationalisation were their goal, it is difficult to
see how China’s tighter restrictions on Tencent and Ant would
Digital money may pose a new threat to dollar hegemony
help to reach it. Since 2018 they have had to clear all mobile pay­

A mile from the White House stands the Capital One Arena, a ments through a central clearing party, in effect overseen by regu­
20,000­seat stadium for basketball and ice­hockey games. lators. The government has also demanded that they hand over
The arena is in the Chinatown district of Washington, surrounded data on their customers’ transactions and borrowing. “You have to
by Chinese restaurants and the “Friendship Archway”, built to cel­ think twice before allowing a payments network with its head­
ebrate the American and Chinese capitals becoming sister cities in quarters in China, where privacy laws are different,” comments
1984. One afternoon in March, this correspondent arrived at the Mr Landau.
arena and went to buy a Diet Coke from the Walgreens opposite. “There are two possible rationales for the government to inter­
Once at the till she tapped on the azure blue Alipay app: up popped vene in this way,” says Markus Brunnermeier of Princeton. “The
a qr code, scanned by the checkout worker to collect payment. The first is that big tech firms should not monopolise the data, and one
transaction took a second. way to do that is to have them give it to the government...the sec­
Had it been possible to enter the stadium it would have been ond is surveillance by the government.” Another is to maintain
just as easy to use Alipay, the payment platform started by Alibaba, capital controls. A third of economists polled by Mr Brunnermeier
to buy tickets or snacks. Nor is the Walgreens in Chinatown un­ think capital controls are an insuperable obstacle to internation­
ique in accepting the app. Around 7,000 of them across America alisation of the yuan. Yet it is clear that the Chinese authorities are
take it, as do shopping centres like Pier 39, in San Francisco, and desperate to keep them, even at the expense of the currency’s in­
several Chinese restaurants in New York ternational role.
and Boston. A bigger risk is what happens when oth­
These merchants want to make shop­ er currencies go digital. Had Diem, the idea
ping easier for Chinese tourists, not to per­ Up in the East proposed by Facebook, been operating
suade Americans to use Alipay. The pay­ Alipay, annual active users, bn when Turkey’s president sacked the head
ment app is not easy for English­speakers 1.2 of its central bank in March, it would have
(even in “English” mode most of the inter­ been easy for millions of Turks to move
face is in Chinese characters, so non­na­ Rest of their money into dollars or euros. It might
world*
tives need screenshots reliant on Google 0.9 also have been possible for businesses to
translate). But its growing acceptance out­ start showing qr codes to accept dollars.
side China, where Alipay and its rival We­ “It feels very significant that the coun­
0.6
Chat Pay process 90% of mobile transac­ tries which, apart from China, are most ad­
tions, augurs a shift in financial power. China vanced, most active and most interested in
The dollar is pervasive because every­ 0.3 cbdcs are the medium­sized emerging
one uses it as their “unit of account”. Oil is economies,” says Mr Landau. “They are too
invoiced in dollars. Most global trade is big to accept the loss of monetary autono­
paid for in dollars. Most cross­border fi­ 0 my, and sufficiently small to be exposed to
nancial contracts are in dollars. Global 2016 17 18 19 the risk of foreign­currency competition.”
travellers keep $100 bills in their socks. Fi­ Sources: Company reports; press reports *Data unavailable before 2018 They may feel they have no choice. n

009
 14 Special report The future of banking The Economist May 8th 2021

cbdcs and managing them at arm’s length from the central bank—
Money on my mind
perhaps through third parties. They should not pay interest and
the value of their balances should perhaps be capped. cbdcs may
A brave new world risk empowering authoritarians, but in democratic countries
there is usually adequate separation of powers within government
to stop this.
To some observers, it might seem better if central bankers in
democratic, capitalist countries eschew this thicket of problems
The transition from banking may make financial services
altogether. But the problem with abstaining from creating cbdcs
cheaper and fairer. But it will threaten privacy and sovereignty
is that network effects do not stop at national or currency bound­

N obody likes banks. Their technology is often primitive. Their

users are hit with unpredictable fees. Their functions matter,
yet their coverage is incomplete. This can relegate swathes of peo­
aries. Ant can reach 400m customers outside China through its
partners. Imagine a currency crisis in an emerging country a de­
cade from now, when people and businesses can choose to make
ple in rich countries and entire populations of poor ones to the and collect payments in yuan instead of in their local currency, in
fringes of society. Many of the biggest make most profits from the time that it takes to generate a qr code on a phone.
trading and fees, not providing services to ordinary customers. For small countries,cbdcs may seem necessary merely to hang
And worst of all, their failures can cause catastrophic damage for onto their monetary sovereignty. The bigger question is what the
which they bear only a fraction of the costs. central bankers behind the world’s reserve currencies should do. If
It would seem rational, therefore, to cheer the fierce new com­ they do not issue their own digital money they leave open two pos­
petition that is reducing banks’ traditional role. As capital markets sible paths. One is that they become reliant on private firms such
expand, it is becoming easier to match as­ as Facebook. The other is that their curren­
sets with liabilities that naturally fund cies are sidelined by those with easy­to­
them, reducing the risk of bank runs or use digital money, notably China.
failures. A proliferation of payment tech­ This risk may seem quite small for now.
nologies is upending how people and firms And Chinese capital controls still stand in
conduct their lives, giving millions of un­ the way. Moreover global citizens might
derserved customers previously unimag­ value privacy more than cheap, instant,
inable access to finance. Data can be used cross­border payments. But it is still unset­
instead of assets to secure loans, making it tling, especially since digital money could
possible for people and businesses to bor­ become a method of social control. China
row money against their character, not has already experimented with program­
their collateral. The great promise of fi­ ming digital cash: it issued stimulus pay­
nance can be offered to many more people. ments that expired if they went unused so
The great costs are diminished. Better­in­ as to kick­start the economy more effec­
formed firms should also temper the insta­ tively. In a world without physical cash,
bility inherent in today’s form of credit programmed money could restrict its use
provision. to stop it being spent on, say, foreign books
But this revolution brings with it new or newspapers.
problems. Because they benefit from network effects, payment Central bankers that run reserve currencies can head off the
platforms will tend to concentrate into just one or two giant inter­ potential nightmare of leaving Facebook or China’s government in
mediaries. As more activity migrates away from banks, existing charge of global payment systems by issuing digital currencies of
monetary­policy mechanisms may become obsolete. The risk of their own. If they do it sensibly, digital money could even become
losing control over the monetary system has lit a fire underneath a force for good, not just a defence against disaster. “There is a par­
usually staid central bankers. Projects to accelerate fast payment allel with biological evolution,” said Sir Jon Cunliffe of the Bank of
systems have cropped up worldwide. So have efforts to create cen­ England in March. Evolution is generally slow, but at times of geo­
tral­bank digital currencies, a digital form of paper cash to com­ logical or environmental change it can be rapid. A bewildering
pete with the digital payments of private giants. In China, where number of life forms may appear and many do not survive. This is
payments firms are most advanced, more than 100,000 people are “a helpful lens through which to look at what’s happening now,”
already using a digital yuan in pilot projects. Sir Jon suggested. When people look back at this period they will
The roll­out of what amounts to a new monetary system thus see banking in a period of very rapid change. The hope is that it
comes with risks. Many of the issues it raises are as tricky as the fi­ may emerge in a better state. n
nancial stability and inclusion problems of old. As people move
their money into cbdcs they will pull it out of banks, threatening
the system developed to foster loans without overt state interfer­ acknowledgments A list of acknowledgments and sources is included in the online version
ence in credit allocation. The digital involvement of the central of this special report
bank in everyday transactions would not only increase the risk of offer to readers Reprints of this special report are available, with a minimum order
such interference but also be a gift to those wishing to snoop on of five copies. For academic institutions the minimum order is 50 and for companies 100.
citizens. And the concentration of the economy in digital money, We also offer a customisation service. To order, contact Foster Printing Service:
Tel: +1 866 879 9144; email: economist@fosterprinting.com
whether it is run by private firms or by a central bank, could pro­
vide a new route for malicious actors to destabilise systems For information on reusing the articles featured in this special report, or for copyright queries,
through cyberwarfare. contact The Economist Rights and Syndication Department: Tel: +44 (0)20 7576 8000;
email: rights@economist.com
Yet there should be ways to minimise each of these problems.
The best defence against the unhealthy spreading of state influ­ more special reports Previous special reports can be found at
ence over lending decisions is to keep the current fractional­re­ Economist.com/specialreports
serve system alive. This may mean constraining the scope of

009
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009
 Will covid-19 kill
globalisation?
A documentary film from The Economist

To watch this film please scan the QR code

using the camera on your Apple iOS 11 or
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009
 The Economist May 8th 2021 41
The Americas

El Salvador harsh covid­19 measures, such as soldiers

and police picking people off the streets
Bukele’s bulldozer and throwing them into quarantine, he
called on officials to disobey the ruling.
Raúl Melara, the sacked attorney­general,
had annoyed Mr Bukele by investigating
claims of graft within his government.
MEXICO CITY
But the speed and boldness with which
The millennial president is proving to be even less of a democrat than his
ni moved was surprising, says Juan Melén­
opponents feared
dez of the Netherlands Institute for Multi­

W hen nayib bukele’s New Ideas (ni)

party won a sweeping majority in El
Salvador’s elections in February, fans of de­
tweeted “Así no se hace” (“That’s not the
way you do things”). Nonetheless, five new
judges and a new attorney­general were es­
party Democracy, an ngo. In the election
ni won 56 of 84 seats—more than any re­
cent government—which, along with the
mocracy held their breath. Mr Bukele, who corted to their desks, flanked by armed po­ eight held by its allies, allows it to pass
with a 90% approval rating is the most lice. Four of the six sacked officials then re­ whatever laws it likes. This year the assem­
popular president in Latin America, has signed, suggesting no way back. Mr Bukele bly was due to pick a new attorney­general
shown little regard for checks and balances now controls all three branches of the and one of the five Supreme Court judges.
since he came to power in 2019. On May 1st, state. “Democracy has died in El Salvador,” Mr Bukele has almost certainly
the day new lawmakers first took their declared Revista Factum, a local magazine. breached the constitution, if not other
seats in the legislative assembly, fears The assault on the judicial system is laws. When the votes happened, police
about the 39­year­old president appeared part of a pattern. Mr Bukele is impatient were surrounding the chambers of the Su­
well founded. The assembly promptly vot­ with any institution that appears to stand preme Court and the offices of the attor­
ed to sack the attorney­general and the five in his way. Last year he entered the assem­ ney­general to prevent the embattled offi­
judges who sit in the constitutional cham­ bly, then controlled by the opposition, cials from entering. And although the as­
ber of the Supreme Court, which oversees with gun­waving police to force it to ap­ sembly is allowed to dismiss judges, it ne­
most laws. Mr Bukele crowed on Twitter: prove a loan. When the Supreme Court glected to hold the requisite hearings. It
“And the Salvadorean people, through their ruled as unconstitutional some of his named the new magistrates and a new at­
representatives, said ‘DISMISSED!’” torney­general without following the cor­
The assembly’s decision was quickly rect nomination process. They seem likely
declared unconstitutional by the court it­ → Also in this section to side with Mr Bukele. The new president
self. Hundreds of protesters took to the of the constitutional chamber has little ex­
42 Mexico City’s railway collapse
streets to denounce “the coup”. Officials in perience in constitutional law. Another is a
the United States including Kamala Harris, 42 Violent protests in Colombia former adviser to the president.
the vice­president, condemned it. Juan The firing lays bare not only Mr Bukele’s
43 Bello: A fishy legal conundrum
Gonzalez, an envoy of President Joe Biden, authoritarian urges, but also the weakness

009
 42 The Americas The Economist May 8th 2021

of the system set up after the civil war, Criticism from abroad does not seem to Protests in Colombia
which ended in 1992. A secretly negotiated worry the president, who increasingly be­
amnesty law that helped bring the war to a haves like a modern­day caudillo. He said it Taxing times
close set a precedent of impunity. Politi­ was no concern of the rest of the world that
cians saw institutions not as independent El Salvador was “cleaning” its house. Even
bodies but as spoils to be shared among the so, the reaction from the United States—
main parties: the Farabundo Martí Nation­ home to 2.3m Salvadoreans and, most im­
BOGOTÁ
al Liberation Front (fmln), a left­wing out­ portantly, a source of cash—will still mat­
An unpopular but much-needed tax
fit that started as an umbrella group for ter. But the administration of Mr Biden is
reform is scrapped
guerrilla forces, and the Nationalist Re­ in a tricky bind, since it wants help from
publican Alliance (Arena), a conservative
party that was founded by a former soldier
to oppose those guerrillas.
Central American countries to reduce
northbound migration.
Mr Bukele’s weak point is the economy.
S ince april 28th protesters have defied
an 8pm curfew, and the risk of catching
covid­19, to take to the streets of Bogotá,
Other governments have tried to do He does not have the cash he needs to fund Colombia’s capital. They have burned bus­
similar things in the past. In 2012 the Su­ his ambitious social and infrastructure es and police stations and looted banks
preme Court and the assembly, then programmes. Some members of the United and shops. Protesters also blocked all the
dominated by the fmln, clashed over ap­ States Congress and Human Rights Watch, main roads leading to Cali, the country’s
pointments of judges, leading to a stand­ an ngo, are calling on the imf to call off or third­largest city, for several days, result­
off. But no one in the country has ever make conditional a $1bn bail­out that El ing in empty shelves in grocery shops and a
wielded as much power as Mr Bukele. The Salvador is currently negotiating (it re­ shortage of medicine in hospitals. At least
opposition parties, which hold only 20 ceived $389m in emergency loans during 24 people died and more than 800 civilians
seats between them, have been sidelined. the pandemic). Rumours swirl that China, and police officers have been injured. On
They were left out of the planning meet­ which did not condemn the ransacking of May 1st Iván Duque, the president, sent in
ings for the first legislative session. Oppo­ the court, would be willing to finance El the army to quell the violence.
sition mps had their microphones and vot­ Salvador’s short­term needs. The protests were triggered by a tax­re­
ing screens turned off for most of it. Both An economic squeeze might also be the form bill the government sent to Congress
the police and the army appear to be under only thing that can dent Mr Bukele’s in­ on April 15th. On May 2nd Mr Duque with­
Mr Bukele’s sway, too. credible popularity. Salvadoreans point to drew the unpopular bill. The next day the
The president is likely to go after re­ tangible things he has done for them, such finance minister, Alberto Carrasquilla, re­
maining state institutions, such as the hu­ as sending out laptops for students and signed. But resentment against the presi­
man­rights ombudsman and the supreme food parcels for many families during the dent, whose approval rating is 33%, means
electoral tribunal. On May 3rd he tweeted: pandemic. But even if people now regret that the unrest is likely to continue.
“The people did not send us to negotiate. voting for an authoritarian leader, it may Mr Duque’s reform was sorely needed.
All are going.” Journalists fear they will be be too late, as Mr Bukele will have already Because of the pandemic, Colombia’s defi­
muzzled. Mr Bukele has already de­ captured the state, says Celia Medrano, a cit has tripled to nearly 8% of gdp. The re­
nounced some, threatened criminal char­ Salvadorean candidate to head the Inter­ form would have removed many vat ex­
ges against others and launched a money­ American Commission on Human Rights, emptions and lowered the threshold for
laundering investigation against El Faro, a regional body. “We are at the start of a starting to pay income tax. (Income­tax
an influential digital newspaper. long night.” n revenues in Colombia are among the low­
est as a share of gdp in the oecd, a club
mostly of rich countries.) Pensions would
have been taxed, too. Spending on social
programmes would have increased, poten­
tially benefiting 19m people. Mr Carras­
quilla claims the bill could have reduced
the share of Colombians who are extreme­
ly poor (earning less than 145,000 pesos a
month, or $38) by six percentage points.
Most Colombians, however, saw it as
unfair. One of the longest lockdowns in the
world has emptied wallets and sapped mo­
rale. Last year 2.8m people fell into extreme
poverty. More than 500,000 businesses
have closed. Even though the tax increases
would hit the wealthiest hardest, 80% of
people, when surveyed, opposed the bill.
The bill was not the protesters’ only
grievance. Colombians are frustrated, par­
ticularly with Mr Duque. The president
promised to make the country safer. But vi­
olence is getting worse. Colombia is ex­
A terrible accident in Mexico City
porting record amounts of cocaine and il­
On May 3rd a section of Mexico City’s metro collapsed into the street below. At least 25 legal armed groups are growing stronger.
people were killed; many more were injured. The accident occurred on Line 12, the Since 2016, the year a peace deal was signed
newest part of the system, which has been plagued by problems since it opened in with the farc, the country’s biggest rebel
2012. The political fallout could affect Claudia Sheinbaum, the mayor, and Marcelo army, other armed groups have driven a
Ebrard, the foreign minister, who was mayor during the construction of the line. Both growing number of rural people from their
are seen as potential successors to President Andrés Manuel López Obrador. homes and murdered hundreds of local

009
 The Economist May 8th 2021 The Americas 43

leaders. Colombians also blame the gov­ to press, it seemed that some of the protes­ Duque; he was one of the first to speak out
ernment for mishandling the pandemic. ters would meet with the government on against the bill.
Indeed after Mr Duque withdrew the re­ May 10th. But as their list of demands has Gustavo Petro, a left­winger, is gaining
form, the protests became far more viol­ grown longer—to include withdrawing a momentum in the polls. He lost against Mr
ent. The government has been chided for health­reform bill, introducing a guaran­ Duque in the presidential elections of 2018,
its excessive use of force. An armoured ve­ teed minimum income and an end to the but is planning to run again next year. He
hicle was filmed in Bogotá firing live am­ forced eradication of coca crops, among has proposed that the central bank print
munition in a residential neighbourhood. other grievances—so too has the likeli­ more money to deal with the aftermath of
The ombudsman is investigating the dis­ hood that they will not leave the streets. the pandemic, and has praised the late Hu­
appearance of around 40 people. All this will make Mr Duque weaker. go Chávez, the despotic socialist who set
On May 4th Mr Duque said he would set Unlike his predecessors, he does not have a Venezuela on the path to ruin. Instead of a
up a “forum for national dialogue”, where stable majority coalition in Congress. Even bold tax reform, Mr Duque’s legacy may in­
the government will meet protesters and his mentor, Álvaro Uribe, a former presi­ stead turn out to be ensuring that Colom­
other civil groups. As The Economist went dent, has distanced himself from Mr bia gets its first socialist president. n

Bello Whose fish are they anyway?

A bid to protect part of the Pacific raises legal conundrums

A t 7.30am one February morning last

year, the great Bay of Paracas shim­
mered in the light from the desert.
turtle, sharks, orcas and the blue whale, as
well as yellowfin tuna and swordfish.
Environmentalists have pushed for
family with six boats would be allowed to
continue deep­sea long­lining for Pata­
gonian toothfish, as that family has done
Storms of seabirds—small Inca terns and this for years. Peru has been a pioneer in for a dozen years. The fishing industry
petrels, large cormorants and Peruvian managing the anchoveta fishery. In 2009 it has pushed for Article 5. “It’s important
boobies—swirled over the shore, retreat­ introduced a transferable quota system. that the specifics are set out and not left
ing like a mirage on approach. Flamingos The marine research institute fixes the open to interpretation,” says Cayetana
flew javelin­straight. Pelicans bobbed on total catch and monitors boats closely. The Aljovín of the National Fisheries Society.
the water, so ungainly that they seem stock has remained roughly constant. But For some environmentalists Article 5
designed by a committee until they took the country has been a laggard in creating pre­empts a scientific discussion about
flight, elegantly skimming the waves. marine protected areas. Under the in­ the management of the reserve. For
All take advantage of a food chain ternational Convention on Biological others it undermines the whole point of
centred on great shoals of anchoveta Diversity, it signed up to a target of pro­ it. “It’s a power battle for the fishing
(Pacific anchovies), which in turn feed tecting 10% of its seas by 2020. But so far it industry,” says Patricia Majluf of the
on the nutrient­rich plankton provided has only designated four small coastal Peruvian branch of Oceana, an ngo.
by the upwelling of the cold Humboldt reserves (Paracas, the first, dates from “They think Peruvian waters are theirs
current along much of Peru’s coastline of 1975). That contrasts with a regional aver­ and they manage everything perfectly.”
2,500km (1,600 miles). These riches have age in Latin America of almost a quarter. International experience shows that
given the country one of the world’s great The Nazca Ridge covers 7.3% of Peruvi­ banning all fishing in an area leads
fisheries, the third­biggest after China an waters. Both environmentalists and the stocks to regenerate and quickly in­
and Indonesia. Exports of fishmeal, oil fishing industry back it in principle. But a creases catches nearby. And enforcement
and frozen and canned fish are worth big row has broken out over the details. is easier if all boats are prohibited.
around $3bn a year. All told, the fishing Article 5 of the draft decree separates the The problem is that Peruvian law
industry supports around 700,000 jobs. reserve vertically into two zones. It would recognises prior rights, even in protected
And fresh fish and seafood are at the allow commercial fishing for the first areas. Officials are worried that a total
heart of Peruvian cuisine, one of the kilometre below the surface and ban it ban would be legally unenforceable. “You
world’s tastiest. below that, with one exception: a single have to allow a very small amount of
Peru has many problems at the mo­ activity to protect a very large area,” says
ment. The pandemic has hit it hard. It is a senior official. He says the government
suffering political instability that a presi­ will try to prevent the toothfishing fam­
dential run­off election next month is ily from transferring their permit to any
unlikely to resolve. But sustainably other fishermen.
managing the country’s marine resourc­ Mr Sagasti’s government has done a
es is a vital medium­term task. It is also a creditable job of trying to mitigate the
matter of current dispute. pandemic and organise vaccinations. But
Last month the government of Fran­ it is only a caretaker. An imperfect re­
cisco Sagasti, the president since No­ serve may be the most it can manage
vember, published a draft decree to before it leaves office on July 28th. Yet the
establish a marine reserve, known as the issues at stake will surely recur. Accord­
Nazca Ridge. It would cover an area of the ing to some scientists, climate change is
Pacific about the size of Latvia 100km likely to lead to fewer anchoveta. Peru
offshore that contains a submerged should find a way to organise watertight
mountain range up to 4kms down. This reserves. Private property rights cannot
undersea massif is a refuge for endan­ be as absolute over the fish in the sea as
gered species, such as the loggerhead they are on land.

009
 44 The Economist May 8th 2021
Asia

India’s second wave ecdotal evidence point to massive under­

counting. Journalists across India have
Paper tiger detailed scores of cases where official tal­
lies are much lower than those gathered
from hospitals, crematoriums and obitu­
aries. In rural areas, where two­thirds of
the population lives, both data and health
care are even harder to come by. Partly as a
DE LHI
result, a curve that has moved as sharply as
Confronted with catastrophe, the national government looks increasingly hapless
the one describing infections is the one

T wo short months ago Narendra Modi’s

government was one of the most popu­
lar and confident in India’s history. Now,
Half of all cases of covid­19 recorded
around the world are in India, up from one
in 25 at the start of March. The number of
tracing the reputation of India’s govern­
ment, albeit in the opposite direction.
Mr Modi has done himself no favours.
judging by fresh election results, by the covid deaths tripled in March, and then in During much of March and April he devot­
eruption of criticism even in the largely April leapt by a factor of ten. With a quarter ed far more energy to campaigning in one
docile mainstream media, by sharp repri­ of all tests in the country returning a posi­ state election, in West Bengal, than to
mands issued by top courts, by thumbs­ tive result, up five­fold in the past month, increasingly urgent cries of panic. In re­
down judgments by seasoned analysts and it is clear that India’s monster second wave sponse to the revelation that his govern­
by a level of rage on social media unusual has yet to reach its peak. Already nearly a ment had hugely miscalculated the avail­
even for India’s hothouse online forums, quarter of a million Indians have died after ability of vaccines, he turned to showman­
the prime minister and his government are being infected by the virus, and that is go­ ship, declaring a national “Tika Utsav” or
in trouble. ing by the government’s own numbers. Inoculation Festival. Since it was
It is not simply that evidence has For any country to suffer such devasta­ launched, the number of people getting
mounted of repeated failures to heed tion is awful enough. But even as the offi­ vaccinations every day has fallen by half,
warnings of an impending second wave of cial death toll has mounted, faith in its ac­ owing to shortages. Belatedly addressing
covid­19, including from the government’s curacy has sunk. Epidemiological and an­ the public on April 20th, Mr Modi warned
own health experts. Nor is it just that Mr against lockdowns and called instead for
Modi and his team have struggled to re­ testing, isolating the infected and tracing
spond to a calamity greater than India has → Also in this section their contacts. Recognising that it was too
experienced in generations. Indians are ac­ late for such measures to have any effect,
45 Mumbai v Delhi amid the pandemic
customed to ineptitude and meagre sup­ most Indian states and big cities locked
port. Rather it is a sense of utter abandon­ 46 Home decor in South Korea down anyway.
ment, especially among the politically noi­ The crisis has forced Mr Modi’s govern­
47 Devious Filipino commies
sy middle class, that is driving the anger. ment into embarrassing policy reversals.
The epidemic continues to worsen. On 47 Water woes in Bangladesh Its vaccine campaign, touted in January as
May 5th the country reported over 412,000 the world’s biggest and most generous, has
48 Banyan: Australia’s China debate
new infections, its highest number yet. been sharply adjusted. After banning vac­

009
 The Economist May 8th 2021 Asia 45

cine exports to address the national short­ tions announced on May 2nd left the bjp es, meaning that many ballots were cast
fall, the government abruptly declared that and allies with just one out of four prizes. before the deadliness of the second wave
individual states and private actors would More tellingly, the party was hammered became clear. Significantly, the margin
have to bear half the burden. Despite pro­ in West Bengal, the state it had fought seems to have widened as the voting went
claiming self­reliance as the hallmark of hardest to win. This was not a referendum on and deaths mounted. In Uttar Pradesh,
his new India, Mr Modi broke with a policy on Mr Modi’s handling of the pandemic: meanwhile, village­level elections showed
begun by the previous government of re­ many Bengali voters dislike the bjp’s thinly a sharp tilt against bjp­endorsed candi­
jecting foreign aid, and welcomed plane­ disguised bigotry and see its Hindi­speak­ dates in parts of the state considered its
loads of medical supplies donated by more ing, ostentatiously religious leaders as cul­ fiefs. One of them was Varanasi, Mr Modi’s
than a dozen foreign governments. The se­ turally alien. The voting was in eight phas­ own parliamentary constituency. n
verity of shortages, particularly of oxygen,
and the wrenching and very public misery
caused by this growing disaster made it
impossible not to.
But the misfortunes of Mr Modi’s gov­
ernment have been compounded by hap­
lessness. The public, overwhelmed with
anguish at death on so vast a scale, has
been flabbergasted by repeated revelations
of incompetence. Initial shipments of aid,
they discovered, had been held up by offi­
cials wanting to impose duties. These were
eventually removed and local sales taxes
abolished or reduced. (But on oxygen con­
centrators, a life­saving instrument, this
was from a crushing 28% to a merely goug­
ing 12%.) In the state of Gujarat it was re­
vealed that factories making gas­storage
tanks, which use oxygen in the manufac­
turing process, had halted production of
the desperately needed containers because
the government was allocating all oxygen City administration in India
to hospitals.
The state’s displays of pure callousness Urbs prima in Indis
have also been shocking. Residents of Del­
hi, whose hospitals are completely full,
have been treated to the spectacle of the so­
licitor­general arguing that its state gov­
ernment, which needed help with oxygen
D E LHI
supplies, was being a “cry baby”. With the
Why Mumbai is handling its second wave better than Delhi
capital under strict curfew, Mr Modi’s gov­
ernment has also given special licence for
work to continue on a $2.6bn project to
overhaul the grand government buildings
W hen the world sees images of India’s
covid­19 crisis, it is through the eyes
of the citizens of Delhi. That is not just be­
commissioner of the Municipal Corpora­
tion of Greater Mumbai (mcgm), an enthu­
siastic marathon­runner named Iqbal
of the city centre, including a fancy new cause most foreign correspondents and Singh Chahal, describes an immense, data­
residence for the prime minister. photographers live—and are stuck—there. driven operation in which information
Meanwhile the chief minister of Uttar The capital’s caseload has been among the and action­plans are managed and co­or­
Pradesh, tipped by some as a successor to highest and deadliest of any city in the dinated through a distributed network of
Mr Modi, has not only declared that there country. On May 3rd alone, 448 deaths 23 “war rooms”, or control centres, one for
is no oxygen shortage in his poor state of were reported and untold numbers died each of the city’s administrative districts.
225m people, but that individuals and even unrecorded. One in every four tests is com­ An online dashboard, visible to the public,
hospitals that spread “rumours” of short­ ing back positive, typical of an outbreak is constantly updated by each war room
ages would be vigorously prosecuted. that is out of control. and every hospital, displaying the avail­
“This government has lost its mind,” On May 5th the Supreme Court, situated ability of beds and a trove of other data.
shouts a man who has just lost his niece in in Delhi, told the national government, About 40% of Mumbai’s present capacity is
a hospital in Meerut, a city in north­west­ which is there too, to “look to Mumbai and in “jumbo” field hospitals, built during the
ern Uttar Pradesh, in a scene captured by take note” of its successes in managing the first wave and wisely kept in a state of
Newslaundry, an investigative news group. supply of oxygen. But the city has a lot readiness even as emergency operations in
”They talk of being a superpower, but what more to teach. Even proportional to its other cities were closing shop. Mr Chahal’s
kind of superpower can’t even find oxygen somewhat smaller, if denser, population, a task­force is already at work drawing up
for its people?” fifth as many people are dying there each plans to combat an inevitable third wave,
Elections, of course, will prove the real day as in the capital. The positivity rate of which it expects will arrive in July. Seen
test of what this change in fortunes may tests, at around 11%, is less than half of Del­ from Delhi, such foresight sounds like sci­
mean for Mr Modi and his Bharatiya Janata hi’s. There are thousands of vacant beds. Of ence fiction. How did the fates of India’s
Party (bjp). He does not face a national one the beseeching tweets and WhatsApp mes­ two biggest cities diverge so much?
until 2024, so he may have enough time to sages asking for beds or oxygen, few give The answer comes down to administra­
repair damage and right his ship. But early an address in Mumbai. tion, in three different ways. The first is the
omens are not good. Results of state elec­ In interviews with the local media, the structure of government. Mumbai has a

009
 46 Asia The Economist May 8th 2021

unitary municipal corporation, whereas

Delhi is a morass of overlapping authori­ Korean vibes
ties. There is no equivalent of Mr Chahal in
Delhi. Instead, executive functions are di­
Let there be mood lighting
vided messily between the national gov­
SEOUL
ernment; the elected quasi­state govern­
South Koreans are discovering a taste for understated illumination
ment, currently run by Arvind Kejriwal, its
chief minister; and five municipal corpo­
rations, including one controlled by the
armed forces. The national parliament vot­
W alking around Seoul at night,
Suzie Son noticed a curious
change. The city’s high­rise residential
in Seoul. “People used to pay little atten­
tion to their homes in that respect,” he
says. Most South Koreans work long
ed recently to grant veto power over Mr blocks usually emit a harsh white glare hours and socialise outside the home.
Kejriwal’s government to a lieutenant­go­ from the fluorescent lights fitted in every “But now there’s Instagram and YouTube,
vernor appointed by Narendra Modi, the South Korean flat. But in recent years she so even if you’re rarely there your home
country’s prime minister. has seen an increasing number of soft is something else you can put on display
It is bad enough that Delhi has no dedi­ yellow rectangles appearing in the grids to compete with others.”
cated government looking out for the city. of windows. “My foreign friends always The pandemic has had an effect as
Worse is that the overlap of interests complained about the cold bright light in well. Like their counterparts elsewhere,
means it also lacks what Yamini Aiyar of their homes,” says Ms Son, who runs the South Koreans have spent more money
the Centre for Policy Research, a think­ lighting division at ikea Korea and goes on their homes the longer they have been
tank in the city, calls “political maturity”. on night­time walks as part of her market stuck in them. Sales in Ms Son’s division
Mr Kejriwal’s government is hamstrung at research. “None of the Koreans ever rose by 20% over the past year, she says.
the best of times but, at times like this, the thought about changing them.” Department stores run by Lotte, a local
politicking between different levels of gov­ That is no longer the case, especially conglomerate, report a similar increase
ernment is frantic. Party workers are hiring among younger Koreans. “I have those in demand for lights. Monthly sales of
auto­rickshaws to deliver oxygen to hospi­ bright ceiling lights in my place but I designer lamps at the Conran Shop, a
tals and tweeting evidence of their heroics, never turn them on,” says Kim Yeon­soo, pricey British retailer, have grown five­
since it is parties, not administrators, that a 24­year­old paralegal who recently fold since it opened in Seoul’s glitzy
are top of mind. moved into a small flat in Seoul. Instead, Gangnam district two years ago. Gentice,
By contrast, Daksha Shah, a senior she uses lamps with low­wattage yellow a purveyor of bedroom furniture, is
health officer at the mcgm, explains that lights to create what she considers a expanding its range of bedside tables
one of the biggest benefits of her city’s uni­ more calming atmosphere. Her new bed “because people want somewhere to put
fied chain of command is apparent in its was chosen for the soft, indirect reading their reading lights”, says a saleswoman
system of triage. People who are afraid that light built into the headboard. Her at an interior­design fair at a mall in
they may not be able to get life­saving friends have similar tastes, she says: Gangnam.
treatment are inclined to hoard it, like “Young people just pay more attention to Soft yellow lights are casting their
Westerners with loo roll last year. The light and mood.” glow outside the home, too. Though
mcgm‘s war rooms see test results before Their parents are not far behind. Ms most Korean restaurants and pubs re­
any of the city’s patients do. That way their Kim says her mother shares her distaste main in thrall to white striplights and
field agents can bring the news to the iden­ for white lights. A shopkeeper in Euljiro, multicoloured leds, the self­consciously
tified cases and escort them to and from Seoul’s lighting district, says his most hip coffee shops, wine bars and noodle
hospital beds exactly when and where the popular product—single­bulb pendant joints popping up across the country are
best treatment can be provided, to maxi­ lamps inspired by mid­century European aiming for a more sophisticated vibe.
mise efficiency. designs—is sought by 20­somethings Their owners scour traditional markets
Second, Mumbai may have had an ad­ and middle­aged housewives alike. and the internet for vintage Tiffany
vantage of administrative boundaries, too. Countless pictures of impossibly lamps and knock­off versions of Bauhaus
India’s second wave started in the state of sumptuous interiors, shared on social light fixtures, importing design trends
Maharashtra, of which the city is the capi­ media, have helped home decor join beloved by cool kids across the globe. For
tal. When cases began to rise in the central handbags and cars as a way of displaying long­suffering aesthetes such as Mr Cho,
and eastern parts of the state, that caused status, reckons Minsuk Cho, an architect that is some light relief.
warning lights to flash early for the local
government. Likewise some of Delhi’s dis­
advantages may be because of its neigh­
bours. The city spills over its borders to
take in the most urbanised bits of two
states with much worse health care. Neel­
kanth Mishra, a strategist for Credit Suisse,
a bank, guesses that Delhi may be absorb­
ing desperate cases from a wider area.
Lastly, the fact that the national govern­
ment has some role to play in directly run­
ning Delhi may have contributed, too.
When it gets it right, the city benefits. But
when it is sluggish and dithering, as in re­
cent weeks, that affects the people of Delhi
more directly than those of any other re­
gion. The result has been to make India’s
capital, in normal times a synonym for the
country, the face of its catastrophe. n

009
 The Economist May 8th 2021 Asia 47

Charity in the Philippines Development in Bangladesh

Reds under the veg Thirst trap

MANILA
How to make a political meal of A new set of ideas to fix Bangladesh’s
food banks long-running water crisis

P recautions against covid­19 have

constricted the livelihoods of millions
of Filipinos. So a recent sprouting of hun­
B angladesh, which sits within the
world’s largest river delta, has no short­
age of water. Alas, barely any of it is drink­
dreds of local food banks meant to keep able. Much of the country’s surface water
their hunger at bay should, on the face of it, contains high levels of poisonous arsenic,
be widely welcome. Instead, it has stirred owing to both man­made and natural caus­
up a storm of political controversy. Lieu­ es. The effects of climate change increas­
tenant­General Antonio Parlade, a leading ingly sully the rest with salt, even in wells
defender of the Philippine state against dug deep. As cyclones and tidal surges
communist rebels, denounced the food from the Bay of Bengal intensify, sea water
banks, called community pantries, as the fills the delta. Salt­ridden soil makes grow­
work of the devil. The general’s suspicion ing rice impossible, forcing Bangladeshis
that communist plotters are behind the The spectre haunting Manila to abandon low­lying regions—home to a
food banks may seem far­fetched. But the quarter of the country’s 170m people—in
pantries are nonetheless a threat to elected is perfectly legal. But being labelled as a favour of more fertile areas or cities.
politicians, who would prefer to preserve a possible communist or communist sym­ Too much salt is as bad for humans as it
monopoly on handing out goodies to vot­ pathiser—called red­tagging—can put the is for crops. It causes hypertension, raising
ers near election time. suspect at risk of becoming a casualty of the risk of strokes, heart attacks and mis­
The pioneer of community pantries is the now mostly clandestine conflict. carriages. Those who remain on the coast
Ana Patricia Non (pictured), who set up a The uproar caused by Lieutenant­Gen­ collect rainwater to drink and cook with.
tiny stall in the Quezon City area of metro­ eral Parlade’s remarks means that Ms Non, This is hard in the dry season, says Shikha
politan Manila in mid­April, and invited her community pantry and their imitators Rani Mala, who lives in Morrelganj, in the
anybody in need to take the food arrayed are now so firmly fixed in the public eye coastal district of Bagerhat. A nearby pond
on it, which was supplied by donors. She that they should all be safe to carry on feed­ offers a substitute for rain, she says, but
was responding to the government’s tight ing the needy unmolested. Mr Duterte ig­ quickly becomes stagnant. This is when
lockdown of Manila and nearby provinces nored the general. Harry Roque, the presi­ Ms Mala turns to one of the many vendors
during a second wave of covid­19 that dent’s spokesman, lauded the community who travel around peddling pricey bottled
swelled in March, which had choked off pantry movement as an admirable mani­ water from cycle rickshaws.
economic activity and slashed incomes. festation of Filipino neighbourliness, Various groups are trying to fix this
Within days, similar stalls were springing while rejecting the idea that it revealed the state of affairs. The Department of Public
up all over the country, stocked with do­ inadequacy of the government’s lock­ Health Engineering (dphe), a government
nated provisions and attracting long down­relief scheme. That effort makes a agency responsible for managing water in­
queues. Admittedly Ms Non did post a va­ single payment of 1,000 pesos (around $21) frastructure outside big cities, has bought
riation on a Marxist maxim on her stall, to each of 23m people in Manila and nearby expensive new nanofiltration machines,
asking people to take according to their provinces. “The position of the president is which use a membrane to remove most or­
need and give according to their ability. clear,” Mr Roque said. “Let a thousand com­ ganic matter, bacteria, viruses and salts. It
The phrase caught the eye of Lieuten­ munity pantries bloom.” Whether any iro­ is trying them out in three districts, in­
ant­General Parlade, the spokesman for the ny was intended by paraphrasing a Maoist cluding Bagerhat, and providing the water,
National Task Force to End Local Commu­ slogan is unclear. for now, without charge. Brac, Bangla­
nist Armed Conflict, who inferred that the Still, the food banks put local politi­ desh’s biggest ngo, has teamed up with a
community pantry movement was a com­ cians in a fix. Local governments have the Welsh business, Hydro, to install equip­
munist conspiracy. “It’s all over the coun­ task of distributing official relief, affording ment that purifies water using a process
try, with a similar theme. It looks like it was politicians planning to run for re­election called electrocoagulation. The machines
packaged with the same strategy,” he said. next year a chance to curry favour with vot­ cost about the same as those used by dphe,
He compared those supplying Ms Non ers. To prevent community pantries from but treat water twice as fast. This allows
with food to Satan tempting a gullible Eve putting the official relief in the shade, local Brac to sell the water at the relatively af­
with forbidden fruit in the Garden of Eden, politicians could try to stamp them out by fordable rate of ten taka ($0.12) for 20 litres.
to bring about humanity’s downfall. regulating or red­tagging them. Or they Yet even where water can be cleaned
The general speaks for the body that could simply jump on the bandwagon as cheaply, middlemen like Ms Mala’s rick­
President Rodrigo Duterte hopes will end a food donors, hoping that the recipients shaw vendor end up as distributors, push­
half­century­old communist rebellion in will remember their charity, come election ing up prices by as much as 250%.
the Philippines. This insurgency is mori­ time. The stance of Mr Duterte, ever the Nor is access to clean water guaranteed
bund. Its leaders are nearing the end of populist even though the law forbids him
their natural lives and its dwindling rank from running for a second term, forces lo­
and file survive by extorting money from cal governments to accept that the needy Correction In a recent article about colonial place
names in Australia, we referred to “an especially
businesses at gunpoint. While attempting must receive both the official relief and grizzly slaughter”. Many eagle-eyed readers wrote in
to overthrow the state by force of arms is charitable aid. Who will succour the politi­ to point out that we meant “grisly”. Thank you for
against the law, simply being a communist cians hungry for the people’s gratitude? n bearing with us.

009
 48 Asia The Economist May 8th 2021

for the 300,000 to 400,000 migrants who sells directly to consumers using vending It will be a while before Drinkwell’s suc­
move to Dhaka, the capital, each year. machines and a pay­as­you­go card system cess in the cities can be applied to places
Some 4m of the city’s 18m residents, most­ for between $0.09 and $0.14 a litre. The like Morrelganj. Half of all water­treatment
ly in the slum districts, do not have piped utilities provide the untreated water, the projects fail because, whether set up by the
connections to their homes. Most still pay land and the electricity, but “we do every­ government or an ngo, “the running and
a premium to the city’s water mafia for ille­ thing else,” says Mr Chowdhury, including maintenance are then left to fall on the
gally tapped water, which is often contam­ purifying the water. A bigger prize than community”, says Saifur Rahman of dphe.
inated in the process. keeping costs low, however, is ensuring The costs are usually too high. Local gov­
Minhaj Chowdhury, a Bangladeshi­ the long­term sustainability of the system. ernments are supposed to provide water to
American entrepreneur, thinks he has Many worthy attempts to provide cheap, rural areas. Often they do not. Mr Rahman
found a way to cut out unscrupulous mid­ clean water eventually run out of funding. and his colleagues are in the process of re­
dlemen. His company, Drinkwell, works Drinkwell’s profit­based model and tie­ups minding elected officials—most of whom
with state water utilities in Dhaka and with utilities should help make its opera­ live in Dhaka and rarely visit their rural
Chattogram (formerly Chittagong) but tion pay for itself. constituencies—that this is their job. n

Banyan Closing argument

Australia’s debate about China is becoming shrill and one-sided

C hina’s communist party has given

Australians plenty to be dismayed
about, from its vituperative anger when
defending Australia’s waters. A senior civil
servant, Michael Pezzullo, weighed in
with talk of the “drums of war”, pointing
China, in which those arguing for en­
gagement, nuance or open debate are
shouted down. A furore erupted when
the Dalai Lama visits, to buying off Aus­ the finger at China without naming it. Jane Golley, a prominent academic at the
tralian politicians, to trying to influence Yet if war is not actually imminent, Australian National University, argued
academic research at Australia’s univer­ which it is not, then the government line that debates about China were being
sities. China is not best pleased, either. is not helpful. Natasha Kassam of the stifled by a “dominant narrative”. She
In an extraordinary outpouring of bile Lowy Institute, a Sydney think­thank, was perhaps unwise to choose the topic
last year, the Chinese embassy in Canber­ argues in the Guardian that while the of China’s brutal treatment of Uyghurs in
ra enumerated 14 grievances against reasons for talking about regional chal­ Xinjiang, which she does not contest, as
Australia. These included the passing of lenges are sound, “there are also real her example. But the outcry seemed to
a law against foreign interference in risks…from causing panic and hysteria.” bear out her broader point.
politics and calling for an independent Not even Taiwan talks of imminent war. Separately, a researcher and prolific
international inquiry into the murky Kevin Rudd, a former prime minister tweeter at the Parliamentary Library,
origins of the novel coronavirus. Putting and cogent observer of China’s rise, goes Geoff Wade, has claimed widespread
Australia firmly on the naughty step, further. Australia’s “highly problematic” Communist Party influence over Austra­
China has blocked a raft of Australian relationship with China is certainly be­ lian life. When a handful of commenta­
exports to China, the unlucky country’s cause of Mr Xi’s much more assertive tors, including one with former business
biggest trading partner. posture. But it is also, Mr Rudd argues in ties to China, challenged the basis of his
Australia long needed a public debate the smh, because Mr Morrison and his claims, Mr Wade issued defamation suits
about China, but politicians were loth to team “are addicted to the drug of ‘standing against them. James Paterson, a senator
broach one. Even as China’s power and up to China’.” That may play well at home, who is part of a group of China hawks in
reach grew under President Xi Jinping, but “the public language on China, Taiwan Parliament, claimed Mr Wade was the
Australia’s leaders, and voters, were and the possibility of war…serves zero object of “state­backed coercion”. (Also
happy striking an awkward balance in national security purpose.” without evidence, Mr Wade’s critics
which it got its prosperity from China— What is more, the line from Canberra counter that murky forces are paying for
through vast exports of iron ore and coal poisons a wider domestic discourse over his legal campaign.)
and imports of Chinese students—and One veteran Canberra hand describes
its security from an America­led order. a dangerous “ideological intolerance” in
But, given Chinese rage, having it both which moderate voices are drowned out
ways is no longer an option. and the debate about China is reduced to
The government of Scott Morrison, emotion. Another senator, Eric Abetz,
prime minister since 2018, relishes call­ last year even called on Chinese­Austra­
ing China out. By now, though, the rhe­ lians appearing before his committee to
torical flourishes are starting to sound as denounce the Communist Party. That
though it were girding for war. Mr Morri­ points to a further risk, says Greg Barns, a
son says Australia must speak with “one lawyer: pinko paranoia plays to a xeno­
voice” on foreign policy, as if scrappy phobic, racist undercurrent that has long
debate was uncalled for, or even unpatri­ run through Australian life.
otic. The new defence secretary, Peter Such an undercurrent risks resurfac­
Dutton, told the Sydney Morning Herald ing if Chinese­Australians face questions
(smh) that Australia was “already under or abuse about their loyalty. If the hawks’
attack” in the cyber domain. He warned tactics end up making Australia seem a
that a war over Taiwan could not be less civil, tolerant or welcoming place,
discounted and that the priority was then the country will be the poorer for it.

009
 The Economist May 8th 2021 49
China

Propaganda sident relatives overseas to shut up; an­

nounced a lawsuit against Adrian Zenz, a
The new scold war prominent researcher into the abuse of
Uyghurs; and harassed a bbc journalist,
John Sudworth, into leaving China.
The campaigns are getting personal. In
April Xinhua, the official news agency,
called Mr Zenz a “puppet of anti­China
forces”. An entity called the Xinjiang De­
The Communist Party pushes back against critics of its policies in Xinjiang
velopment Research Centre issued a report

N ot long before the Beijing Olympics of

2008, the Chinese government carried
out a vicious crackdown on demonstra­
fliction” it has marshalled vast resources,
including official media, think­tanks, dip­
lomats and security organs, and spent bil­
titled “Slanderer Adrian Zenz’s Xinjiang­
related Fallacies Versus the Truth”. Global
Times, a party tabloid, denounced Vicky
tions in Tibet. Foreign media drew atten­ lions of dollars over the past decade. Xu, an Australian researcher who has writ­
tion to it, and people outside China held A notable feature of recent propaganda ten about forced labour. It accused her of
protests. A Chinese academic popularised about Xinjiang has been relentless attacks stoking sentiment that puts Chinese peo­
the idea of “three afflictions”: two that Chi­ on China’s critics. In March the govern­ ple in Australia “in peril”, and quoted a Chi­
na had faced in the past (“being beaten” by ment imposed sanctions, such as bans on nese student who said she was “bewitched
foreign powers and “being starved” by pov­ visiting or doing business with China, on by the anti­China forces in the West”.
erty) and a third that it faces now: “being elected officials, researchers and think­ In the past, when the party was accused
scolded” by the rest of the world. Later tanks in Europe and North America that of specific abuses, its propagandists would
President Xi Jinping adopted the concept, had caused offence. Chinese officials also issue general denials. They would also try
arguing that China faces a “fight for inter­ stirred up online nationalist boycotts of to recast repressive policies as examples of
national discourse”. Western firms that had acknowledged the the party’s wisdom and munificence, pro­
On no subject has China been more possibility of Uyghur forced labour in Xin­ ducing what a vice­president of Xinhua
scolded than Xinjiang, where it has in­ jiang’s cotton industry. once called “fairy tales”. And they have
terned some 1m Uyghurs, a mostly Muslim Since then authorities have made Uygh­ long tried to change the subject by playing
ethnic group, for such things as being too urs in China make videos begging their dis­ up human­rights abuses in America. State
pious or talking to relatives overseas. Me­ media still produce fairy tales about happy
dia in democracies uniformly portray this Uyghurs doing traditional dances. But
→ Also in this section
as a grotesque abuse of human rights. The now, at almost any critical mention of Xin­
Communist Party is pushing back, in an ef­ 50 A boom in plastic surgery jiang, China pushes back hard.
fort to break what it calls the “discourse he­ David Bandurski of the China Media
52 Chaguan: Resistance is not futile
gemony” of the West. To treat the “third af­ Project, a research group in Hong Kong,

009
 50 China The Economist May 8th 2021

says this verbal ferocity is partly aimed at a boycott in China. The Better Cotton Initia­ 35, and 85% are female. In America, 81% of
nationalist audience within China, which tive, a global apparel­industry consortium, cosmetic­surgery patients are over 30 and
likes to hear the motherland robustly de­ took down an online statement of concern nearly one­quarter are over 55. Ms Wu be­
fended (as does Mr Xi). That helps explain a about Xinjiang cotton. In 2019, after an ex­ lieves part of the reason young people have
blustery performance by Yang Jiechi, Chi­ ecutive of a National Basketball Associa­ surgery is the influence of Confucian par­
na’s top diplomat, at a summit in Alaska in tion team tweeted in support of protests in enting, which means that children grow up
March with America’s secretary of state, Hong Kong, China’s main broadcaster without unconditional approval. This nor­
Antony Blinken. After Mr Blinken raised stopped showing nba games. Since then, mally leads to academic pressure, she says,
the subject of Xinjiang, among other con­ players and executives have been almost but it can also be internalised so that chil­
cerns, Mr Yang unleashed an 18­minute ti­ completely silent on China. dren feel the need to improve their appear­
rade about the virtues of “Chinese­style “Not only Adrian Zenz, but all anti­ ance from a young age.
democracy” and the effrontery of those China forces who attempt to inflict pain on Double­eyelid surgery accounts for half
who try to “smear” it. Xinjiang through slanders must pay the of all treatments. (In America breast aug­
A fragmented global media landscape price,” Xinhua wrote on April 30th. Such mentations are the most popular proce­
makes it easier to spread disinformation. threats may cow some critics, but others dure, although in 2020, the year of Zoom,
Conventional outlets are struggling finan­ will be emboldened. The new scold war more Americans fixed their noses than
cially, and conspiracy theories proliferate could last a while. n their breasts.) Some say the desire for
on social media and YouTube. China has rounder eyes is about looking more West­
spent hundreds of millions of dollars an­ ern. But women care more about achieving
nually over the past decade to take advan­ Plastic surgery the “golden ratio” of facial proportions, a
tage of this, expanding its media footprint more Chinese requirement, reckons Joyce
abroad under a “Great Foreign Propaganda Nipping and Xu, who works in marketing in Beijing.
Campaign”, says a working paper for the The golden ratio is an upside­down tri­
Brookings Institution by Rush Doshi (now tucking angle: big eyes, relatively flat cheekbones,
a China specialist on America’s National a narrow jaw and a small mouth. Ms Xu (al­
Security Council). He notes that, since so not her real name) started Botox injec­
2009, Xinhua has doubled the number of tions to that end when she was 27.
Why so many young Chinese try to
its foreign bureaus to 200; China Radio As middle­class incomes have risen,
change the way they look
International, a state broadcaster, has surgery has become more affordable. Ms
more than tripled its hours of program­
ming in 65 languages; and China Global
Television Network (cgtn) has established
H annah tang, a company manager in
Beijing, first went under the knife
when she was 18. The surgeon made an in­
Xu’s quarterly injections are 3,000­5,000
yuan ($460­$770) each time, which she
deems a bargain. However, the popularity
itself as a new brand overseas, with 24 cision across each of her eyelids, then of such things has led to widespread fak­
channels in five languages. stitched folds of skin back to transform her ery. An estimated two­thirds of injectables
Equally important have been state me­ monolids into “double eyelids”. The result in China are unlicensed. In February Gao
dia’s deals to place content in other media was eyes that look bigger, rounder, and in Liu, an actress, shared shocking pictures
outlets around the globe—what propagan­ Ms Tang’s opinion, more beautiful. Now 35, on social media of her botched nose job. It
da officials call “borrowing the boats to Ms Tang (not her real name) has since had resulted in the tissue on the tip of her nose
reach the sea”. China Daily paid handsome­ two more eyelid surgeries, as well as botox dying and turning black.
ly to place inserts in such newspapers as injections in her neck and monthly non­ Horror stories such as Ms Gao’s may not
the Washington Post and The Economist invasive “skin booster” treatments. “Pretty slow growth. One consequence of starting
(though both ended the arrangement in much everyone I know around me has had on treatments so young is that your “base­
2020). Since 2018, Xinhua has struck con­ fillers or surgery,” she says. line appearance gets forgotten,” notes Ms
tent­exchange deals with print, radio and China’s cosmetic­surgery market is Wu. As a movie character almost said,
television outlets in Australia, Egypt, In­ booming. Some analysts think it is now the there’s a great future in plastic surgery. n
dia, Italy and Nigeria, to name just a few, world’s biggest. In 2019 the Chinese
writes Sarah Cook of Freedom House, a “medical­aesthetics” industry (which in­
watchdog. She adds that many consumers cludes surgery, injections and skin treat­
of these outlets may not know that some of ments) had revenue of $27bn, around one­
their news (especially about China) comes fifth of the global total, estimates Deloitte,
from Chinese state media. a consultancy. It reckons the average annu­
The authorities in Beijing recognise al rate of growth in China’s market between
that the most persuasive voices are not 2015 and 2019 was 29%, compared with a
their own. They prefer to “borrow a mouth global average of around 9%. By 2023, De­
to speak”—promoting online the voices of loitte estimates revenue will reach $48bn.
useful foreigners, some of whom have Figures can be vague partly because
made YouTube videos about their travels in “there is a huge hidden market” that goes
Xinjiang, challenging reports of Uyghur unreported, says Yi Wu of Maastricht Uni­
suffering. A particular favourite is the versity in the Netherlands. For example
Grayzone, an outlet that has sought to dis­ Dongguan, a city in southern China, has
credit the Western narrative on Xinjiang as over 6,000 unlicensed clinics but only 43
a product of American imperialism. licensed ones. The International Society of
Perhaps unsurprisingly, the propagan­ Aesthetic Plastic Surgery has not included
da push does not appear to have won hearts detailed data on China in its global report­
and minds in rich democracies. But bully­ ing since 2011.
ing critics may work in a way that is hard to Starting young is common. In 2020 61%
measure—that is, in future silence. Many of patients were aged 16­25, up from 48%
firms were quiet in the wake of the online two years earlier. More than 90% are under Not losing face, but gaining a new one

009
009
 52 China The Economist May 8th 2021

Chaguan Resistance is not futile

China fears containment by American-led alliances. It should worry more about why it is distrusted
thing resembling a cold­war effort to check China’s aggression—
especially if it jeopardises profitable trade relationships.
France’s president, Emmanuel Macron, said this year that it
would be counter­productive for Western powers “to join all to­
gether against China”. The German chancellor, Angela Merkel has
also spoken out against the “building of blocs”. In recent tele­
phone and video calls with President Xi Jinping and other Chinese
leaders, there is no record of her raising sweeping sanctions im­
posed by China on European politicians and researchers, in retali­
ation for eu sanctions targeting officials accused of brutally re­
pressing Muslims in the north­western region of Xinjiang.
Official read­outs instead record Mrs Merkel talking of co­­
operation and praising a draft trade pact agreed with China last
year, the Comprehensive Agreement on Investment, which would
offer more access to China’s market for some eu firms, notably
German carmakers. Ironically, the agreement may be doomed by
the sanctions that Mrs Merkel wants to ignore. Those punished by
China include members of the European Parliament, which must
approve the pact. The eu trade commissioner, Valdis Dombrov­
skis, said on May 4th that efforts to finalise the deal are on hold.
eu unity is further undermined by members with close invest­
ment ties to China, such as Greece. One member does not conceal

L eaders of China and America share an obsession: the notion

that a large enough coalition of Western democracies might
have the heft to confront a rising China about its authoritarian,
its admiration for Chinese autocracy, charges a European dip­
lomat in Beijing: “The eu has its traitor in the ranks: Hungary.” Nor
is there consensus within the Five Eyes. In recent weeks, New Zea­
state­capitalist ways, and demand that it follow a new trajectory, land’s government declared itself uncomfortable with the intelli­
one that does less damage to norms and universal values that have gence­sharing pact’s releasing geopolitical statements.
governed the rich world since 1945. China loves all such signs of disunity, praising European na­
China fears a broad, American­led coalition as the one force tions for seeking “strategic autonomy”, a French phrase that
that might still be able to contain it. Not so long ago its foreign means not marching in lockstep with America. Yet in its paranoia
minister, Wang Yi, mocked the Quad, an informal group uniting about American­led alliances bent on containment, China risks
America, Australia, India and Japan, as so much “sea foam”. After missing a change that is actually happening in the real world.
America hosted a Quad­leaders summit, China has called the Even as they concede that the time for trying to change China is
group a destabilising scheme to build an Asian nato. The Trump over, rich­world democracies are defensively China­proofing
administration expanded the role of the Five Eyes, an intelligence­ their economies and their societies. They are setting up new in­
sharing pact between America, Australia, Britain, Canada and New vestment­screening laws, investigating whether foreign powers
Zealand. The group issued a statement in November 2020 about are meddling in their domestic politics and universities, and writ­
the crushing of political freedoms in Hong Kong. But the Five Eyes ing public­procurement rules to block bidders who raise national­
should be careful not to be “poked and blinded”, a Chinese foreign security concerns. The eu is proposing new curbs on state­subsi­
ministry spokesman growled. Australia and Canada are being dised firms wanting to compete in European markets. Such poli­
punished with trade sanctions and detention of their citizens to cies do not always name China, but it is the target.
teach them the cost of helping America in disputes with China.
Under President Joe Biden, American enthusiasm for co­ Standing together, sort of
alition­building has only grown. The secretary of state, Antony Foreign ministers of the g7 countries—America, Britain, Canada,
Blinken, explained to cbs News recently why America seeks allies France, Germany, Italy and Japan—met in London on May 3rd­5th.
to confront China’s government about repression at home and ag­ Their closing communiqué condemns Chinese abuses in Xin­
gression overseas, as well as its adversarial approach to trade. jiang, including “the existence of a large­scale network of ‘politi­
“We’re much more effective and stronger when we’re bringing cal re­education’ camps, and reports of forced labour systems and
like­minded and similarly aggrieved countries together to say to forced sterilisation”. The solutions offered are purely defensive,
Beijing: ‘This can’t stand and it won’t stand’,” Mr Blinken said. and make no pretence that the g7 can change Chinese policies.
In fact, these two rival powers are obsessing about something The risk of importing goods made with forced labour will have to
that is not likely to happen. For one thing, America’s allies have be tackled through “our own available domestic means”, the min­
few illusions that any group of outsiders, even one led from Wash­ isters say, by raising awareness and advising businesses.
ington, can tell today’s China what will and will not stand. As a Such words do not frighten China. Confident in the power of­
Western diplomat in Beijing glumly notes, such countries as Brit­ fered by its vast market, it hopes that foreign governments will
ain, France and Germany “are close to accepting the inevitability hurry up and realise that resistance to its rise is futile. If resistance
of China’s rise”, and so are out of alignment with America. For an­ means forming blocs to contain China, then America’s allies alrea­
other, lots of Western democracies are fractious and mistrustful, dy agree. But those same democracies are also channelling a grow­
especially after four years of Trumpian bridge­burning. European ing distrust into defences that will introduce new frictions into re­
and Asian democracies alike are wary of joining America in any­ lations with China. Friction is a form of resistance, too. n

009
 The Economist May 8th 2021 53
International

Organised crime online cryptocurrency, to take payments and

move money around. They rely on special­
Spam, scam, scam, scam ised criminal encrypted­communications
software to organise their affairs. “There is
no serious organised crime that does not
have a digital component,” says Nigel Leary
of Britain’s National Crime Agency (nca).
Most significant over the past year is
A decentralised dark economy makes cyber­crooks more
the growth in “ransomware”—hacking at­
effective and harder to catch
tacks where victims’ files are locked up un­

N obody likes a call from the taxman.

Donald Rumsfeld, who as America’s
defence secretary oversaw a budget bigger
low in rich countries, the spectacular
growth of cyber­crime—crime committed
mostly or entirely by digital means—
til money is paid. Such attacks were once
crude. Ransomware arrived in spam
emails and targeted ordinary people’s
than the economy of a typical country, stands out. According to the Crime Survey computers. The sums demanded were of­
nonetheless finds the rules so confusing of England and Wales, the best indicator of ten small, to encourage people to pay up.
that he writes to the Internal Revenue Ser­ long­term trends in Britain, in 2019 there These days hackers focus on large orga­
vice each year complaining that he has “no were 3.8m incidents of fraud, mostly on­ nisations and demand big ransoms (see
idea” whether he has filed his taxes cor­ line, representing a third of all crimes chart). Malicious software is injected into
rectly. So it is hardly surprising that, when committed. That figure has increased ev­ specific computer systems. It steals data
the phone rings and an official­sounding ery year since 2017 when the government before locking them. A ransom is then de­
voice says you have underpaid your taxes started collecting data. Around 7% of all manded to unlock the files or, increasingly,
and will be connected to an adviser to pay adults were victims. Three­quarters lost to prevent them from being leaked (back­
the balance, ordinary folk tremble. money, and 15% lost more than £1,000 ups of important data are common now). It
It is, however, invariably a scam. Few ($1,390). In America the number of report­ is almost always in Bitcoin. Chainalysis, a
tax authorities call individuals about their ed cases of internet fraud increased by 69% cyber­security firm, says the amount paid
taxes. If you are lucky, they will send you a last year. Reported losses there (excluding in Bitcoin ransoms increased by 311% last
letter a year later, to the wrong address. bank or credit­card fraud) reached $4.2bn, year compared with 2019, to around
They will certainly not menace you, as bo­ three times higher than in 2017. $350m. Victims are usually businesses but
gus calls often do, with the threat of arrest Other kinds of internet­enabled crime more and more include governments and
if you do not stump up the cash right now. are growing too. Computer­enabled spam their departments, including the police.
Such scams have become vastly more phone calls and text messages, typically On April 27th Washington dc’s coppers re­
common. Phone calls from tricksters trying to defraud people, extract billions of vealed that they had been hit by hackers,
claiming to be taxmen almost doubled in dollars a year. Illegal gambling websites, who say they will expose police informants
number last year, according to uk Finance, many of which steal from their customers, to gangs if the authorities do not pay up.
a trade association of banks. Other coun­ have multiplied. And new technology Ransomware is “the single biggest
tries show increases at least as dramatic. makes many old­fashioned crimes easier threat” in the organised­crime world, says
Even as rates of most crimes remain to perpetrate. Drug­dealers use Bitcoin, a Alan Woodward, a computer scientist at

009
 54 International The Economist May 8th 2021

the University of Sussex who advises Euro­ are embarrassing, too. Individuals rarely
pol, the eu’s police agency. On April 29th Now we’re sucking diesel think to report cyber­crimes to the police.
Alejandro Mayorkas, America’s secretary United States The costs may be borne indirectly. Banks
of homeland security, described it as “a Median size of and insurers will often compensate people
Ransom payments, $’000 companies targeted by
threat to national security”. The damage is Average Median ransomware, employees for losses. Security is improving but the
enormous. Maersk, a global shipping com­ 250 250 crimes are increasingly profitable.
pany, wrote down $300m in losses related The police fret that more traditional
200 200
to a ransomware attack in 2017. Travelex, a criminals are moving into cyber­crime,
British currency trader, collapsed last year, 150 150 and vice versa. “Now the dark web is used
with the loss of 1,300 jobs. An attack that 100 100
for the commodity trade [fencing of stolen
took its systems down at the end of 2019 goods], the drugs trade and firearms,” says
was partly to blame. Despite coughing up 50 50 Mr Leary. In raids in Belgium in March po­
285 Bitcoin—then worth around $2.3m— 0 0 lice seized 28 tonnes of cocaine, as well as
the firm lost about £25m that quarter. It at­ Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
cash, guns, police uniforms and a torture
tributed most of that to the attack. 2018 19 20 21
chamber in a shipping container. The
Ransoms can be eye­watering: an attack Source: Coveware
criminals had reportedly been using Sky
in March on the Broward County school ecc, an encrypted phone network sold by a
system, which includes Fort Lauderdale in Canadian firm. The phones were seeming­
Florida, came with a demand for $40m in are really very low,” says Mr Leary. ly designed to hide criminal activity, with
Bitcoin. In messages leaked by the hackers, That is largely because an entire inter­ end­to­end encryption, disappearing mes­
one of the district’s negotiators was incred­ net infrastructure has developed to facili­ sages and no gps data. Subscriptions were
ulous: “You cannot possibly think we have tate attacks. Cryptocurrency is key. Ran­ paid in Bitcoin. That gave them a great deal
anything close to this.” somware criminals like to use Bitcoin, says of anonymity—at least until European po­
Most government bodies do not. But Kemba Walden, a lawyer with Microsoft’s lice forces managed to inject their own
the consequences of not paying can be just digital­crimes unit because it is very liquid malware into the phones to spy on them.
as costly. In Baltimore County, in Mary­ and relatively anonymous. The end recipi­ Governments are starting to take cyber­
land, schools had to stop online teaching ent is anonymous unless his real­world crime more seriously. America’s Justice
last year for several days after their systems identity can be connected to his virtual ad­ Department has appointed a team to tackle
were locked by a ransomware attack. In dress. Criminals can trade Bitcoin between ransomware. The “five eyes” allies—Amer­
2019 an attack on the neighbouring City of themselves. Cashing out their earnings in­ ica, Australia, Britain, Canada and New
Baltimore cost its taxpayers $18m. During to real money is risky; in most rich coun­ Zealand—are sharing intelligence on it.
the pandemic, hospitals have been hit, too. tries Bitcoin exchanges apply strict “know But there is a long way to go. In Britain only
France reported 27 attacks on hospitals last your customer” requirements. But it is not one in 200 police officers focuses on fraud,
year, as part of a 255% increase in ransom­ impossible. Some exchanges in less­regu­ despite its outsized footprint, according to
ware attacks generally. Medical treatments lated countries apply looser criteria. And figures revealed through the Freedom of
have been delayed in Germany and coins can be “tumbled”—swapped be­ Information Act by the Times newspaper.
America because of attacks. tween cryptocurrencies by money­laun­ And the opportunities are growing. In
derers—to conceal their origins, and then the past six months the value of the world’s
Bitcoin buccaneers sold on well­regulated exchanges. In Rus­ Bitcoin has soared to over $1trn. That surge
The criminals who do it are a mixed bunch. sia and China “it’s just incredibly difficult” of liquidity makes it even easier to hide
Many seem to be based in Russia, other to trace stolen money, says Ms Walden. crime. And as Mr Woodward puts it: “Why
parts of eastern Europe, or China. In Russia Other technological innovations are vi­ would you walk into a bank with a sawn­
and Belarus, cyber­criminals thrive be­ tal, too. simboxes, which allow people to off shotgun to steal £30,000 when, if
cause the state tolerates them, as long as “spoof” (conceal the origin of) phone calls, you’ve got some money to invest, you can
they scam only foreigners. Some reported­ are sold for legitimate purposes, to market­ go on the dark web and start a ransomware
ly have links to the security services. ing firms, for example. But they also allow campaign and make millions?” n
But cyber­criminals do not seem to op­ criminals to spam people or communicate
erate in tightly organised crime groups, without revealing their location. tor, soft­
like drug cartels or mafias. Their strength ware which anonymises internet connec­
comes from their decentralisation. Indi­ tions by bouncing data around the world,
vidual elements of each crime are provided lets the “dark web” thrive, hosting the fo­
as a service to organisers. One lot may rums on which criminals anonymously
write and sell the software. Others may get trade their wares. “Bulletproof hosting”—
it into targets’ computers. Others may col­ server farms with a high level of security
lect and launder the ransom. And a few and privacy—operate like virtual safe
kingpins may finance the entire operation. houses, where compromising data can be
And yet they may never know each other’s moved off at a moment’s notice, invariably
names or locations. before the police are able to get to it.
Crimes such as bank robbery used to be What is the future of such crime? As
artisanal, says the nca’s Mr Leary. Big jobs ransomware has grown, so has the indus­
like the Brink’s­Mat robbery of 1983, when try promising to protect firms from it. The
gold, diamonds and cash worth £26m crime is “becoming more high­profile”,
(£100m in today’s money) were stolen from says Michael Levi of Cardiff University, be­
a warehouse at Heathrow airport in Lon­ cause of attacks such as the one on Maersk.
don, required a large specialist staff who Organisations are trying to buttress their
all knew and trusted one another. These defences. But many do not want to report
days large­scale crime is being industrial­ hacking attempts or fraud. Data breaches
ised by technology. “The barriers to entry are not only damaging in themselves; they

009
 The Economist May 8th 2021 55
Business

→ Also in this section

57 Bartleby: Crafts v graft
58 Waiving vaccine patents
58 News tricks from older consumers
59 Apple in the dock
60 Schumpeter: PE turns PC

Berkshire Hathaway porate exceptionalism, thanks to the halo

over Mr Buffett. With disquiet growing ov­
Honky Tonk Warren er so­so returns, poor disclosure and more,
that benefit of the doubt looks threatened.
Start with the financial performance.
Operating profit—the number Mr Buffett
urges shareholders to focus on—fell by 9%
in 2020, to $22bn, after a flat 2019 (though
There are growing questions over the governance and performance of the world’s
it rebounded in the latest quarter, up by
most famous conglomerate
20% year on year). Berkshire’s shares badly

T he annual shareholders’ meeting of

Berkshire Hathaway has been dubbed
“Woodstock for capitalists”, so large is the
the mid­1960s into a conglomerate worth
$645bn spanning everything from rail­
ways and real estate to insurance and ice
underperformed the s&p 500 index in both
years. Over the past ten years, its per­share
market value has handily beaten the index
throng it usually attracts. For the second cream. Berkshire—a collection of owned or just twice, while lagging far behind it four
year running, though, thanks to covid­19, controlled businesses employing 360,000 times. In truth, Berkshire’s performance
the groupies have been denied their close­ people, and a $300bn portfolio of minority relative to the s&p has been slipping for de­
up love­in with Warren Buffett. The event stakes in blue chips—has done long­term cades (see chart on next page).
on May 1st was online only, with Mr Buffett investors proud. Under Mr Buffett’s stew­ This loss of oomph is partly explained
joined on screen by his longtime sidekick ardship its stock has enjoyed a compound­ by the law of large numbers: the bigger
and fellow nonagenarian, Charlie Mun­ ed annual gain of 20%, double that of the Berkshire grows, the harder it is for any
ger—a headline act that makes the Rolling s&p 500 index (including dividends). single successful investment to move the
Stones look like striplings. needle. Another factor is the dwindling of a
Nevertheless, Warren and Charlie out­ On with the show past advantage. Berkshire has long used
did Mick and Keith for stamina, taking Berkshire’s more recent record looks less the float (premiums not paid out as claims)
more than three hours of questions, cover­ stellar, however—leaving some wondering from its giant insurer, Geico, to funnel low­
ing everything from Berkshire’s first­quar­ if the company, like the Rolling Stones, is cost capital to its other operations. But
ter results, announced earlier that day, to trading on its back catalogue, its greatest these days capital is cheap for everyone.
the ways in which its subsidiaries do and hits a thing of the distant past. That Some wounds have been self­inflicted.
don’t resemble children. For Buffettolo­ prompts another concern. At 90, Mr Buffett Big bets on Occidental Petroleum and Kraft
gists, the highlight was an apparent slip of is still sharp and seemingly in good health. Heinz soured quickly. The consumer­
the tongue by Mr Munger: “Greg will keep But no one lives forever. The change of goods giant, of which Berkshire owns
the culture”. The following day Mr Buffett, front man, when it comes, will be a test of 26.6%, is weighed down by $28bn of debt
who had hitherto refused to publicly name the endurance of Berkshire’s unique cul­ and bloated goodwill after a mispriced
an heir apparent, confirmed that the nod ture and its quirky (some would say anach­ merger in 2015. Mr Buffett has admitted
had gone to Greg Abel, the 58­year­old head ronistic) governance. that he overpaid for Precision Castparts, an
of Berkshire’s non­insurance operations. It will also test whether the sprawling industrial­parts­maker that Berkshire
Mr Buffett has long held the stage as the group can remain in one piece at a time bought in 2016, which subsequently trig­
world’s most celebrated investor, having when conglomerates are out of fashion. gered an $11bn write­down. Some of his
turned a troubled textile firm purchased in Berkshire has long enjoyed a sort of cor­ timing has looked awry, too. Having built a

009
 56 Business The Economist May 8th 2021

big position in American airline stocks, ception, though: its 5.4% stake in Apple, make more right calls than wrong ones.
Berkshire bulked up on more at the start of which has produced a whopping $90bn This approach is increasingly at odds
2020, but lost its nerve as the pandemic gain over five years. Moreover, the eco­ with corporate trends. At this year’s agm,
spread, dumping its holdings and crystal­ nomic pendulum may be swinging back Berkshire faced shareholder proposals on
lising a loss of $3bn­4bn. Within months towards the industrial firms he favours: its skimpy climate­risk disclosure and di­
the sector’s share prices had rebounded. they should benefit from trillions of feder­ versity policies (both were defeated). It is
Indeed, the past year has given the lie to al dollars earmarked for infrastructure up­ also under fire over executive pay, which at
the received wisdom that Mr Buffett grades. bnsf, Berkshire’s railway network, Berkshire is heavily weighted to base sala­
thrives in adversity. That was certainly true can expect to profit as more heavy stuff ry, owing to Mr Buffett’s long­held suspi­
during the financial crisis of 2007­09, needs shifting for all these projects. cion that stock incentives encourage man­
when Berkshire acted as an investor of last Some investors have grown increas­ agers to manipulate the share price. Big
resort, striking highly lucrative deals to ingly vocal in pressing Berkshire to eke out proxy­advisory firms like iss have backed
bail out ge and Goldman Sachs; the ge in­ more from its main divisions. Mr Buffett some of these criticisms. Some have also
vestment yielded a 50% return, most of it has described bnsf as one of the conglom­ taken aim at the board for being too old
within three years. This time, though, with erate’s four “jewels”, along with Geico, bhe (five of its 14 members are 89 or over), too
market liquidity less constrained, Berk­ and the Apple stake. But when Mr Ackman entrenched and too close to the boss.
shire has had less opportunity to pounce. crunched the numbers in 2019, he found Mr Buffett has little time for esg met­
Nor has it been able to find an acquisi­ the railway’s operating margins to be five rics, diversity targets and the like. He has
tion that is both good value and big enough percentage points below the average of its said he doesn’t want his managers to have
to move that needle. Identifying “ele­ peers. Geico has many virtues, including to spend their time “responding to ques­
phants” on which it could spend a sizeable making a profit on its underwriting most tionnaires or trying to score better with
part of its $145bn cash pile has become a years. But its margins, and use of analytics, somebody that is working on that”. A lot of
parlour game in investment circles. When lag those of an arch­rival, Progressive. what is considered good governance today
covid­19 first struck, many thought Mr Buf­ doesn’t fit with Berkshire’s heavily decen­
fett would be spoilt for choice. But buoyant Shine a light tralised approach.
stockmarkets mean fewer bargains for val­ The answer, says one large investor, is for Yet pressure for change is growing, and
ue investors like him to snaffle up. And Mr Mr Buffett to be more hands­on with sub­ will surely intensify further once the foun­
Buffett eschews corporate auctions as they sidiaries. That, though, would go against der no longer calls the shots. Moreover, the
often involve paying big premiums. the grain of the idiosyncratic management post­Buffett leadership is likely to be more
Another turn­off is increased competi­ structure and governance long in place. diffuse, which those hoping to shake up
tion from private equity and spacs. Berk­ Bosses of subsidiaries are given almost to­ Berkshire may see as an opportunity to ap­
shire’s biggest deal of 2020 was more bolt­ tal autonomy; it is not unheard of for them ply more leverage. Mr Abel is ceo­in­wait­
on than blockbuster: the $10bn purchase of to go months without speaking to Mr Buf­ ing, but Mr Buffett’s role as chairman is set
a gas­pipeline operator by its utility, Berk­ fett. Berkshire’s head office is tiny, with to go to his son, Howard. His third role, as
shire Hathaway Energy (bhe). That was just 26 people; divisions have their own le­ investment chief, will probably go to one
less than half of what Berkshire spent over gal, accounting and human­resources de­ of the group’s two top equity­portfolio
the year on buying back its own shares. partments. They report to head office, but managers, Todd Combs and Ted Weschler.
Perhaps the clearest sign that Berkshire it reports little to the outside world. Berk­ The most forceful efforts to impose
may have lost its touch when it comes to shire does not hold analyst calls or inves­ change may come from those seeking to
finding attractive targets was the rapid in­ tor days. It gives out scant financial infor­ break up Berkshire. When he is gone, Mr
and­out of Bill Ackman. The star hedge­ mation beyond mandatory filings, says Buffett conceded last year, “everybody in
fund manager, a lifelong Buffett fan, built a Meyer Shields, an analyst with kbw (who the world will come around and propose
$1bn position in Berkshire in 2019 but had has long been shut out of Berkshire’s annu­ something, and say it’s wonderful for
fully sold out by mid­2020, apparently al conclave because of his sceptical views). shareholders, and by the way it involves
after concluding he could find overlooked Mr Buffett is proud of being different. huge fees.” Some on Wall Street would see
gems more effectively himself. Whereas other big firms have moved to a it as a coup to “release value” by, for in­
Berkshire has also taken flak for largely command­and­control approach, Berk­ stance, splitting the conglomerate into
missing out on the tech boom of the past shire’s remains rooted in trust: he trusts three bits, focused on insurance, industrial
decade owing to Mr Buffett’s preference for the divisions to get on with it, and share­ assets and consumer businesses.
mature businesses. There is one glaring ex­ holders are expected to trust that he will Few doubt that Berkshire trades at less
than the sum of its parts. But even the scep­
tical Mr Shields thinks the discount is only
You can’t always get what you want around 5%. Others think it may rise above
Berkshire Hathaway 10% once its leader departs. Mr Buffett in­
sists that a well­run conglomerate has en­
Difference in total returns v S&P 500 index Price-to-book ratio during advantages. One is not being asso­
Five-year average, % points ciated with a given industry, meaning it
50 5 feels less pressure to maintain the status
40 quo—“if horses had controlled investment
4
30
decisions, there would have been no auto
3 industry,” as he once put it.
20
2
A crunchier benefit relates to tax: Berk­
10 shire can move capital between businesses
0 1 or into new ventures without incurring
-10 0 any. And taxable income at one subsidiary
1969 80 90 2000 10 20 1988 95 2000 05 10 15 21
can help generate tax credits at another. Mr
Sources: Refinitiv Datastream; company reports
Buffett has claimed this gives bhe a “major
advantage” over rivals in developing wind

009
 The Economist May 8th 2021 Business 57

power and solar­energy projects. would overwhelmingly reject a break­up or causes. Posthumous shifts in the share­
How vulnerable to centrifugal forces wrenching strategic shift. holder base are Berkshire’s “Achilles heel”,
Berkshire proves to be will depend more Mr Buffett and his retail kinsmen may reckons Lawrence Cunningham of George
than anything else on the composition of not form such a powerful block for much Washington University.
its shareholder base. Currently, it affords longer, however. Many of the loyalists are As a keen student of corporate history,
protection. The typical large American list­ getting on in years. The children who in­ Mr Buffett will doubtless know that James
ed company is mostly owned by institu­ herit their shares may show less zeal. Even J. Hill, a 19th­century railroad baron who
tional investors. Berkshire is different. Mr some of the faithful may sell once the Ora­ led an operator that would later become
Buffett has around 30% of the voting share; cle of Omaha has gone. Moreover, Mr Buf­ part of bnsf, once declared that a company
another 40% is held by an estimated 1m fett’s stake will be sold into the market only has “permanent value” when it no
other individuals, many of them long­term after his death, albeit over more than a de­ longer depends on “the life or labour of any
loyalists (with whom he has spoken of hav­ cade. He has bequeathed it to various foun­ single individual”. Berkshire’s greatest
ing a “special kinship”); the rest is owned dations on condition that they sell the challenges will come only after its grizzled
by institutions. If a vote were held today, it shares and spend the proceeds on good rock star has left the stage. n

Bartleby The human touch

Crafts and the future of work

I n “the repair shop”, a British televi­

sion series, carpenters, textile workers
and mechanics mend family heirlooms
worldwide success of the Singer sewing
machine showed the potential of a mass­
produced device. This process created its
For workers, the appeal of crafts­
manship is that it allows them the auton­
omy to make creative choices, and thus
that viewers have brought to their work­ own reaction, first in the form of the Arts makes a job far more satisfying. In that
shop. The fascination comes from watch­ and Crafts movement of the late 19th sense, it could offer hope for the overall
ing them apply their craft to restore these century, and then again in the “small is labour market. Let the machines auto­
keepsakes and the emotional appeal beautiful” movement of the 1970s. A third mate dull and repetitive tasks and let
from the tears that follow when the crafts movement is emerging as people workers focus purely on their skills,
owner is presented with the beautifully become aware of the environmental im­ judgment and imagination. As a current
rendered result. pact of conventional industry. example, the academics cite the “agile”
Perhaps the idea of craftsmanship is There are two potential markets for manifesto in the software sector, an
not simply nostalgic. In a new paper* in those who practise crafts. The first stems industry at the heart of technological
the Academy of Management Annals, from the existence of consumers who are change. The pioneers behind the original
five academics examine the idea of crafts willing to pay a premium price for goods agile manifesto promised to prioritise
as a way of remaking the organisation of that are deemed to be of extra quality. This “individuals and interactions over pro­
work. They define craft as “a humanist niche stretches all the way down from cesses and tools”. By bringing together
approach to work that prioritises human designer fashion through craft beers to experts from different teams, agile work­
engagement over machine control”. bakeries offering “artisan” loaves. To the ing is designed to improve creativity.
Crafts require distinct skills, an all­ extent that automation takes over more But the broader question is whether
round approach to work that involves the sectors, this niche seems likely to become crafts can create a lot more jobs than they
whole product, rather than individual more lucrative; there is “snob value” in do today. Demand for crafted products
parts, and an attitude that necessitates owning a good that is not mass produced. may rise but will it be easy to retrain
devotion to the job and a focus on the The second market lies in those consum­ workers in sectors that might get auto­
communal interest. The concept of craft ers who wish to use their purchases to mated (such as truck drivers) to take
emphasises the human touch and indi­ support local workers, or to reduce their advantage? In a world where products
vidual judgment. environmental impact by taking goods to and services often have to pass through
Essentially, the crafts concept seems craftspeople to be mended, or recycled. regulatory hoops, large companies will
to run against the preponderant ethos of usually have the advantage.
management studies which, as the aca­ History also suggests that the link
demics note, have long prioritised effi­ between crafts and creativity is not auto­
ciency and consistency. Frederick Wins­ matic. Medieval craft guilds were mo­
low Taylor, a pioneer of management nopolies which resisted new entrants.
studies, operated with a stopwatch and They were also highly hierarchical with
perceived human workers as inefficient, young men required to spend long peri­
and potentially disobedient, machines. ods as apprentices and journeymen
Craft skills were portrayed as being prim­ before they could set up on their own; by
itive and traditionalist. that time the innovative spirit may have
The contrast between artisanship and been knocked out of them. Craft workers
efficiency first came to the fore in the can thrive in the modern era, but only if
19th century when British manufacturers they don’t get too organised.
suddenly faced competition from across
the Atlantic as firms developed the ..............................................................
“American system” using standardised * “Configurations of Craft: Alternative Models
For Organising Work” by Jochem Kroezen, Davide
parts. Initially these techniques were Ravasi, Innan Sasaki, Monika Zebrowska and Roy
applied to arms manufacture but the Suddaby

009
 58 Business The Economist May 8th 2021

Vaccine patents not on the table. In her comments Ms Tai 65% of them had shopped online in the
mentioned waiving intellectual­property preceding 12 months, compared with 54%
A shot in the arm protections, but only for vaccines. the year before. America’s over­65s spent
Consensus at the wto could take 53% more on internet shopping than the
months to secure, and after that countries year before, according to NielsenIQ, a re­
will still have to change domestic laws. search firm (see chart).
Meanwhile, the pandemic will be raging, Hinge, an e­commerce consultancy,
WASHINGTO N, DC
while other constraints on vaccine supply says that sales of products disproportion­
America proposes waiving patents
continue to bite, including the availability ately bought by older people, from meal re­
on vaccines
of special inputs from plastic tubing, fil­ placements to adult nappies, have jumped

A merica has long been the global pro­

tector­in­chief of intellectual property.
But on May 5th it sought to tear up the rule
ters and even specialist bags. Investors
may worry about a fall in profits. If negoti­
ations at the wto suck energy away from
by 50% or more, outpacing overall sales.
Businesses catering to older consumers
are adapting. The staple of GoGoGrandpar­
book. “The extraordinary circumstances of other initiatives to transfer technology and ent used to be helping greying North Amer­
the covid­19 pandemic call for extraordi­ increase vaccine supplies, that would real­ ican technophobes book ride­sharing ser­
nary measures,” said Katherine Tai, the Un­ ly be something to fear. n vices by phone. With social distancing this
ited States Trade Representative. To help business dwindled, says Justin Boogaard,
battle the pandemic, the administration of its co­founder. In April 2020 the firm di­
President Joe Biden said it supported waiv­ Ageing consumers versified into delivering food to old folks
ing some intellectual­property protections with dietary restrictions; these are up by
for vaccines. Jaws dropped—along with the The boomer boom 300% since then, it says.
share prices of vaccinemakers. It isn’t just products aimed specifically
Investors shuddered at the idea that at the old that the elderly are snapping up
other manufacturers might pounce on un­ on the internet. Their online spending on
protected intellectual property. Only a day booze nearly quadrupled in America, esti­
earlier, Pfizer forecast vaccine revenues of mates NielsenIQ. SilverSingles, a dating
Older consumers have learned new
$26bn in 2021, with profits around $7bn. website, reports healthy growth in the
tricks in the pandemic.
Splitting such spoils could blunt the incen­ number of new monthly users. Virtual first
tive to invest and undermine innovation.
And if firms fear that their know­how can
be pilfered with impunity, it could under­
B aby boomers, aged 57­75, are as the
name implies, plentiful. Healthier and
more adventurous than similarly aged co­
dates featuring wine tasting, food deliver­
ies and film streaming are all the rage, af­
fording brands the chance to offer their
mine collaborative efforts. Just as bad, horts in the past, since 2018 over­65s have wares to oldies who have signed up.
botched imitations by generic manufac­ outnumbered the under­fives. They are al­ Brands are also attempting to appeal to
turers could fuel vaccine hesitancy. so wealthier. America’s boomer­led house­ the elderly through such things as “healthy
The waiver’s advocates argue that a holds spend $64,000 a year, almost twice ageing” products, which the pandemic has
pandemic is not the time to be thinking as much as those headed by youngsters turned into a craze. Nestlé, a Swiss con­
about profits. Moreover, existing commer­ born from 1997 onwards. Together with the sumer­goods giant, has launched a milk
cial agreements should be unaffected. Be­ earlier “silent” generation, they account drink in China, which supposedly aids mo­
yond that, it is unclear how much extra for two­fifths of American consumer bility. Reckitt Benckiser, a British rival, is
supply of vaccines a waiver could unlock. spending. Yet brands and retailers have marketing one that targets immunity. Da­
The complexity of some production pro­ long given older shoppers short shrift, fo­ none, a French yogurt­maker, is investing
cesses means that copycats will need co­ cusing most of their attention on the wrin­ in developing similar products. Compa­
operation from originators. James Love of kle­free. As with many things, the pan­ nies are also thinking about spending
Knowledge Ecology International, an ad­ demic is demanding a rethink. more on wrinkle­friendly adverts; just 3%
vocacy group, hopes that the threat of For one thing, fear of covid­19, more of America’s ad spending is aimed at peo­
weaker protections could encourage more deadly for the elderly, has ushered oldies ple over 50, reckons Joseph Coughlin, who
voluntary­licensing agreements, in which online. Last year British over­65s made up runs the AgeLab at the Massachusetts In­
companies transfer their know­how. There 30% of consumer­goods purchases online, stitute of Technology.
are untapped suppliers such as Teva, an Is­ up from 20% in 2019. In August Britain’s Some innovations welcome in a pan­
raeli generics firm, which recently said Office for National Statistics reported that demic may be less so once it passes, espe­
that it would give up looking for a produc­ cially for retailers. Maintaining priority
tion partner. But even these sort of volun­ slots for online deliveries to the elderly,
tary agreements are likely to take around Grey area and not charging them a delivery fee on
six months to set up. Consumer spending by over-65-year-olds what tend to be small orders ferried at a
American support for a waiver is the 2020, % increase on a year earlier loss, is going to be costly, warns one super­
first step in what could be a lengthy pro­ Online Offline
market boss. Yet companies will face pres­
cess. Several countries, including mem­ sure to keep them to retain custom, espe­
0 10 20 30 40 50 60
bers of the European Union, Britain and cially with ever more physical shops shut
Switzerland, which opposed such a move United States for good.
at the wto last year, must be persuaded to They may also need to make online
change their minds. They will struggle to France
shopping easier than it already is. That
hold the line against America, so may could mean fewer forms that the elderly
agree to a narrow exception to trade rules. (and everyone else) find fiddly, and more
Britain
A broader waiving of the rules, as proposed options as to how and when to pay, to reas­
by India and South Africa, to include the sure older shoppers who worry about shar­
removal of patent and trade­secret protec­ Germany ing credit­card details. Having taught old­
tions for all covid­related products, in­ Source: NielsenIQ
ies some new tricks during the pandemic,
cluding therapeutics and diagnostics, is firms must now learn a few themselves. n

009
 The Economist May 8th 2021 Business 59

Epic Games v Apple comparison Apple’s defenders often draw.

And in America the iPhone is now domi­
Battle royal nant, boasting a market share of nearly
two­thirds.
Such back and forth about the “relevant
market” and other wonkish concepts is at
the centre of most antitrust cases. In Epic’s
S AN FRANCISCO
suit against Apple, predicts William Kovac­
The iPhone-maker may win a court battle but lose a regulatory war ic of George Washington University, this
will be enlightening: arguments have to be

I s apple’s online store for smartphone

apps akin to a private club, where the
firm can set the rules no matter what, even
The lockdown leap
Big-five tech company revenues
made in public over a few weeks. But most
other cases drag on forever. And once a ver­
dict is finally reached and a remedy is
if this means it can exclude people it does % change on a year earlier found, it is often too late, as the European
not like and overcharge the rest? Or is the 60 Commission in particular has found in re­
app store more like a town market square, Facebook
cent years. It has convicted Alphabet, Goo­
meaning among other things that any firm Amazon
gle’s parent company, three times, im­
40
is allowed to do business there? posed fines of more than €8bn ($10bn) and
The devilish details of antitrust law demanded far­reaching remedies—only to
aside, this is the main question before a 20 see that not much has changed. Although
judge in California in a trial that started on European Android users are now asked to
May 3rd. It will be a battle royal between Microsoft 0 pick their default search engine on a
Epic Games, the maker of Fortnite, a popu­ Alphabet “choice screen”, Google’s market share has
Apple
lar online video game, and Apple, the -20 hardly budged.
world’s most valuable technology compa­ 2016 17 18 19 20 21
Understandably, the commission is
ny. Epic accuses the tech giant of having Source: Bloomberg
now trying to go down another path. Pro­
abused its dominance when it kicked Fort­ posed in December, its Digital Markets Act
nite off the app store last year after Epic at­ (dma) avoids lengthy debates about such
tempted to offer a separate payment sys­ rial College in London. For starters, they things as the “relevant market” by explicit­
tem. Apple counters that the games firm is never seem to stop growing, as last week’s ly defining a gatekeeper: firms that have
just trying to avoid paying its commission round of blockbuster financial results annual revenues in the eu of at least
rate of up to 30% and free ride on the tech again shows, although pandemic­induced €6.5bn in the past three financial years and
giant’s inventions. digital demand also played a big role (see have at least 45m users in at least three
An Epic win would up­end the econom­ chart). Gatekeepers benefit from strong member states. Any company that meets
ics of smartphone apps. Epic, and others, network effects which mean that size be­ these criteria will have to follow a set of
would probably be allowed to use their gets size. As the economy becomes strict rules. Among many other things, bar­
own payment systems in iPhone apps and increasingly digitised, they can also move ring app developers from linking to their
perhaps even offer alternative app stores. more easily into adjacent markets than own website would be prohibited, as
Both would put pressure on the profitabili­ their analogue brethren. would be efforts by gatekeepers to give
ty of Apple’s services business, of which The bigger problem, however, is that their own offerings a leg up (which Apple
the app store is a large part—estimates put digital gatekeepers are not the benevolent stands accused of doing with its music­
its margins at well above 70%. dictators they pretend to be. To protect its streaming service).
Yet legal experts expect Apple to pre­ commission (or “take rate”) of up to 30%, Although they think along similar
vail: antitrust precedent is stacked against Apple forces app developers to use its pay­ lines, regulators in other countries are not
Epic and the judge has voiced scepticism ment system and prohibits any links to as convinced a thick rule book will do the
about the firm’s position. Even if she in­ their websites, where they might offer cus­ trick. Britain, for instance, is likely to go for
deed sides with Apple, however, the victory tomers a better deal. This is the core com­ more flexibility, paired with a strong regu­
may well turn out to be a setback for the plaint in another case against the iPhone­ latory agency, called the Digital Markets
firm. It would add further fuel to a debate maker, brought by Spotify, an audio­ Unit (dmu). In America the Federal Trade
among regulators around the world: how streaming service, and taken up by the Commission could become a dmu, al­
durably to rein in the biggest tech firms, European Commission on April 30th. Ap­ though Congress may yet turn growing bi­
which are increasingly seen not just as po­ ple’s rule book is also getting hellishly partisan tech hostility into action and pass
werful platforms, but as gatekeepers for complex and seems arbitrarily enforced. a dma­like law.
growing parts of the economy. “Every developer can tell a horror story,” It will still take several years before this
Gatekeepers are as old as the economy says Benedict Evans, who publishes a is settled, but it would come as a surprise if
itself. Toll bridges qualify, as do railways widely read tech newsletter. digital gatekeepers, like many of their ana­
and even nationwide supermarket chains In its defence, Apple argues that it is logue predecessors, do not end up being
such as Walmart. Nor are they necessarily well within its rights: it built the app store, regulated in some manner. Even if it wins
bad. Without Apple’s largely effective pol­ can make its rules and, crucially, is not a its fight with Epic, Apple may want to start
icing of its platform, the app business monopoly. If developers do not like the changing some of its policies. This may be
would be much smaller: users would have rules, they can go to Android’s Play Store or good business anyway, Bill Gurley, a noted
to worry a great deal more about scams and create an app that runs in a browser. Not venture capitalist in Silicon Valley, has
system crashes. And allowing rival app so, counter the firm’s critics. Any develop­ long argued. Maximising the take rate may
stores, which Epic wants, may increase er that wants to make good money needs to backfire because it tends to weaken a plat­
competition, but with the risk of causing be in the App Store. As for consumers, form, he wrote a few years back in a blog
security problems. switching from an iPhone to an Android post. “There is a big difference between
Digital gatekeepers come with draw­ device is in most cases tricky—in any case what you can extract versus what you
backs, too, says Tommaso Valletti of Impe­ harder than changing supermarkets, a should extract.” n

009
 60 Business The Economist May 8th 2021

Schumpeter Losing the mystique

Whatever happened to the bad boys of private equity?

parent, to adopt environmental, social and governance (esg) stan­
dards, and to pay more taxes, it is increasingly hard to tell where
public markets end and where private equity begins.
The impetus for transparency comes first from investors—for
good reason. One of the articles of faith of private equity is that it is
worth the high fees because it reliably outperforms public mar­
kets over long periods. Yet recent evidence from Josh Lerner of
Harvard Business School, among others, shows that in America,
private equity’s biggest market, it has performed only slightly bet­
ter than public markets during the past decade, and that returns
are on a downward trend. Hugh MacArthur of Bain, a management
consultancy, says that at the start of the pandemic there was a lot
of discussion between private­equity firms and their investors
about returns as asset prices plunged, which led to a relatively un­
precedented level of disclosures.
But questions remain. They revolve around the flakiness of
private­equity data and the industry’s internal measurements of
return. These will get fiercer as retail investors, in America in par­
ticular, are allowed greater access to private markets that were
once the exclusive domain of sophisticated investors. Buyout re­
turns will come under more scrutiny because deals in America
and Europe last year were among the priciest ever, making it hard­

T here has long been an element of the gentlemen’s club about

the private­equity (pe) industry. It is still predominantly male.
It has a buccaneering history filled with mystique. It cherishes dis­
er to make money on them. It won’t help, either, if inflation is ris­
ing and higher interest rates raise buyout firms’ borrowing costs.
More financial transparency is one thing. pe firms are also un­
cretion. And its fees are exorbitant compared with the services it der pressure from investors to demonstrate their environmental
provides. If anything covid­19 has made it even more exclusive. and social credentials. Some of the biggest firms, such as kkr and
Despite what Preqin, a data gatherer, says was a slowdown in Apollo, were early converts to esg. But scrutiny has always been
fundraising during the pandemic as in­person meetings stopped, haphazard. Blackstone has recently taken measurement serious­
the firms with the longest pedigrees have had the least trouble ly: within the last year it has set out to cut the carbon footprint of
raising money, doing deals and earning bumper profits. firms it acquires by 15% within three years, as well as instructing
That includes kkr, a 45­year­old pioneer of the leveraged companies it owns to report on esg risks to their boards.
buyout market, which in five months has just amassed its biggest Some will see such efforts as a wise risk­mitigation strategy, as
private­equity fund ever, at about $18.5bn, according to Reuters. It well as a way of appealing to consumers and employees. Others
extends to Apollo, which on May 3rd agreed to spend $5bn acquir­ will deride them as a pesky box­ticking exercise. Inevitably, they
ing two digital­media brands, Yahoo and aol, from Verizon, a tele­ will be subject to accusations of “greenwashing”. So like it or not,
coms firm, weeks after taking part in a $6.25bn deal for casinos in governments are stepping in. From March 10th the European
Las Vegas. Meanwhile Blackstone, the biggest pe company of all, Commission has been phasing in a regulation that obliges asset
raised $95bn across all its funds in 2020, on a par with three previ­ managers, including private­equity firms, to meet esg require­
ous years, and recently reported record quarterly profits. ments. Since President Joe Biden took office, the Securities and Ex­
These companies have vivid pasts that have helped burnish the change Commission, America’s markets regulator, has also taken
industry’s reputation for gutsy dealmaking. kkr is the legendary the matter more seriously. Soon even buyout firms without an esg
“barbarian” behind the buyout in 1988 of rjr Nabisco, a food con­ mandate may be under the cosh.
glomerate. In 1990 Apollo emerged from the ashes of Drexel Burn­
ham Lambert, a collapsed junk­bond firm. Blackstone’s founder, From pe to pc
Stephen Schwarzman, is on schmoozing terms with many world The need to be seen as good citizens becomes all the more impor­
leaders. Yet no longer does he nor many of his counterparts play tant as private equity engages in more consumer­sensitive digital
the role of company frontman. In March, Leon Black, longtime businesses, such as health care and fintech, as well as doing more
leader of Apollo, relinquished control of the firm, following revel­ work on behalf of governments, including bankrolling an infra­
ations of his links to the late, disgraced financier, Jeffrey Epstein. structure boom in America proposed by Mr Biden. The adminis­
On earnings calls, a younger generation is at the helm. Their tration already has the industry in its sights. It is hoping to raise
talk is as much of the reliable fees earned from managing vast tax revenues by getting rid of “carried interest”—a perk of private­
sums of money, including those coming from financial acquisi­ equity investment managers whereby they can pay low rates on
tions (kkr recently bought Global Atlantic, an insurer, and Apollo long­term capital gains. It is a threat the industry has long evaded.
merged with Athene, an annuity provider) and credit funds, as it is But it has yet to contend with a Democratic Party whose left­wing
about the swashbuckling world of buyouts. Increased predictabil­ regularly accuses it of “looting”.
ity has helped the firms’ share prices easily outperform America’s Such accusations are nonsense. By funding and reshaping
s&p 500 over the past five years. Yet they also make the once­snaz­ companies, private equity generates wealth, jobs and growth. It
zy “alternative investment” market look more mainstream. Cou­ used to do so, though, while revelling in its bad­boy image. It no
pled with pressure on the industry at large to become more trans­ longer has the option of being so politically incorrect. n

009
 The Economist May 8th 2021 61
Finance & economics

China’s digital money will challenge the dollar for prominence.

Within China, however, many econo­
The new yuan: a lot like the old yuan mists are far less bullish. The design of the
ecny, and the nature of China’s economic
system, mean that each of these claims is
unlikely to be realised soon. “The digital
yuan is not magic, so we don’t expect mag­
SHANGHAI
ic from it,” says Gary Liu of the China Fi­
Some expect a revolution in the yuan’s status abroad and its role at home.
nancial Reform Institute in Shanghai.
Don’t count on it
Start with the first claim, that digitisa­

W ith a few taps on her phone, Lu

Qingqing, a 24­year­old office work­
er, leapt into the monetary future. She was
chart 1 on next page). More than half a mil­
lion people have already received ecny in
trials since last year. China’s central bank is
tion offers unmatched surveillance abili­
ties, letting the state track all spending. It is
not entirely wrong. But it is a limited gain
one of 50,000 people in Shenzhen selected studying how to spread it abroad. Niall Fer­ compared with its existing powers.
late last year for a trial of China’s digital guson, a historian, has called on America Most mobile payments today involve a
currency, called ecny. She downloaded an to wake up to the peril of letting China bank card, tethered to users’ accounts on
app, received 200 yuan ($30) from the gov­ “mint the money of the future”. Alipay or WeChat. These must pass
ernment and went shopping for books. The China’s digital currency was first con­ through NetsUnion, a central clearing plat­
app’s display showed a traditional bank­ ceived as a way to curb the big mobile­ form. Similarly, foreign­exchange transac­
note. “It felt like real money,” she says. money providers. Now three bold claims tions take place on the China Foreign Ex­
Legally, it is as real as hard cash. All the are being made about it: that it will dramat­ change Trade System. In both cases regula­
money in an ecny app, offered by one of six ically enhance China’s surveillance capa­ tors can see how people spend in real time.
commercial banks, is backed by an equiva­ bilities; that it will allow the state to wield For mobile payments that do not touch
lent deposit at the People’s Bank of China. far more control over money; and that it banks, officials can demand a record and,
Just as the central bank stands behind any says an industry insider, may soon require
paper yuan, so does it guarantee ecny. If, real­time reporting, too.
→ Also in this section
say, the commercial bank that made Ms The upshot is that, even without ecny,
Lu’s digital wallet went bust, her ecny— 62 Foreigners’ forays on Wall Street regulators have no real blind spots left,
linked to her personal­identity number— apart from old­fashioned cash. And so long
63 Buttonwood: Dr Copper
would be transferred to a new wallet. as millions of older citizens do not much
Central banks worldwide are consider­ 64 Cleaning up Greek banks like paying for things with smartphones,
ing issuing digital versions of notes and the government will not phase out cash.
64 Women and wealth
coins. Although China will not be the first The second bold claim about ecny is
(that honour goes to the Bahamas), it is the 65 The economics of prisons that it will reshape monetary policy in Chi­
most important launching ground. It is the na. According to this view, the central bank
66 Free exchange: Escape from the city
world’s leader in mobile payments (see will be able to program money to be used

009
 62 Finance & economics The Economist May 8th 2021

for specific purposes and at predefined Foreign banks in America

times. This, however, both understates A narrow question 2
what the central bank can already do and China, broad-money supply, yuan bn Farce and furious
overstates what the ecny will let it do. 250
China already manages both the money
supply and interest rates with different Time and saving deposits (M2-M1)
200
sectors in mind. Since 2015, for instance, it Demand deposits (M1-M0)
has created hundreds of billions of yuan Currency in circulation (M0)
150 Why foreign banks’ forays on Wall
for the construction of affordable housing.
Street have gone wrong—again
More recently it has instructed banks to 100
lower interest rates for small firms.
The ecny, one might assume, will make
targeting more precise. But its design will
50 T he implosion of Archegos Capital, a
New York­based investment firm, in
April splashed egg on many faces. Banks
circumscribe its role. The central bank will 0 that had lent it vast sums to bet on volatile
replace only a small portion of base money, 2010 12 14 16 18 20
stocks have revealed over $10bn in related
known as m0, with ecny, leaving the rest of Source: Wind
losses in recent weeks. America’s leading
the money supply undisturbed (see chart investment banks, barring Morgan Stan­
2). It will distribute ecny through commer­ ley, were largely absent from the big casu­
cial banks, which in turn will make it avail­ the yuan’s appeal. The limiting factors are alties, though. Instead the grim league ta­
able to the public. It will not pay interest on policy and politics, not technology. ble featured foreign champions. Most no­
ecny. And it will probably place low ceil­ Even the technological case for ecny is table, because of its huge loss of $5.4bn,
ings on how much people can hold. far from clear­cut. When companies trans­ was Credit Suisse, a Swiss bank; also
Granted, the central bank may in time fer money in and out of China, they already among them were ubs, its compatriot, and
expand the ecny’s role. But the limitations use currency in a digital format: electronic Nomura and Mitsubishi ufj Financial
exist for a reason. The government is wary messages on the swift payments network Group, two Japanese banks.
of undermining the financial system. It instruct banks to credit accounts in one This humiliation is the latest in a long
does not want savers to switch out of bank country and debit them in another. What series of foreigners’ setbacks on Wall
deposits en masse into ecny, which would slows things down is complying with Chi­ Street. That they would covet its spoils is
make it harder for banks to fund them­ na’s capital controls and with internation­ understandable. Much of American eco­
selves. Moreover, few serious economists al regulations such as those aimed at stop­ nomic activity is funded through capital
in Beijing like the idea of a 100% ecny ping money­laundering. markets, in contrast to Asia and Europe,
money supply, in which the government The ecny will not eliminate such where bank lending reigns supreme. That
could directly control how banks lend. “We checks, and the Belgium­headquartered makes America the world’s largest and
don’t want to go back to central planning. swift system, which connects more than most profitable investment­banking mar­
That would be a mistake,” says Yu Yong­ 11,000 financial institutions, is likely to re­ ket, accounting for 53% of global revenue,
ding, a former adviser to the central bank. main the most efficient conduit for shar­ according to Dealogic, a data provider.
The final bold claim is that ecny will ing payment information across borders. Challengers have gone at it with gusto.
catapult the yuan to global status. But that “Even in the long term, swift will remain Credit Suisse fired first, taking control of
misunderstands why it accounts for just indispensable,” says Liu Dongmin of the First Boston, an investment bank, in 1990.
2% of international payments today, about Chinese Academy of Social Sciences. Deals accelerated around the turn of the
the same as the Canadian dollar. When de­ The three more radical claims about it millennium. Deutsche Bank bought Bank­
ciding which currencies to use, companies may not be realised, but will the ecny fulfil ers Trust for $10bn, followed by ubs’s pur­
and investors consider how easily they can the original aim, of giving the central bank chase of Paine Webber, a broker, and Credit
make conversions to other currencies; a foothold in the digital­payments uni­ Suisse’s swoop on dlj, a private­equity
how freely they can invest them; and verse? Probably, but not a giant one. After specialist. Japanese banks bought stakes in
whether they trust the issuing countries’ the ecny trial in Shenzhen, Ms Lu said that Wall Street institutions. A symbolic mo­
legal systems. China’s insistence on main­ she would use it for some payments, but ment seemed to come in 2008, when Bar­
taining far tighter capital controls than any that Alipay and WeChat were far more con­ clays, a British bank, picked up the spoils
other major economy, as well as deep­seat­ venient because of how they tie into com­ of Lehman Brothers.
ed doubts about its political system, blunt mercial and social­messaging networks. The campaign, however, soon turned
Mr Liu of the China Financial Reform Insti­
tute expects others to concur. He predicts
Phoning it in 1 that in three years the ecny will account Small fry
Value of mobile payments, $trn for less than 5% of mobile payments. US investment-banking fees, $bn
Western governments and central By domicile of bank

China United States bankers mulling digital currencies of their 60

60 0.20 own may wonder if the outcome of the e­ Japan
cny experiment will contain any lessons Europe
0.15 for them. But China is unusual in so many United States 40
40 ways—from its sheltered financial system
0.10 and intricate capital controls to the size of
its mobile payments—that its experience 20
20
0.05 could well prove to be unique. And other
countries are sure to implement different
0 0 designs for their digital currencies. Still, 0
2012 15 20 2012 15 20
China’s caution with the ecny, if nothing 2000 05 10 15 20
Sources: Wind; eMarketer
else, hints at how disruptive the technolo­ Source: Refinitiv
gy, if unconstrained, could be. n

009
 The Economist May 8th 2021 Finance & economics 63

into a rout. Overstretched foreign lenders at home, and thus fewer opportunities to for dlj as did Lehman Brothers, the closest
were the hardest hit by America’s sub­ make money, make it tempting to chase lu­ bidder, says a former investment­banking
prime meltdown. As regulators forced crative deals abroad. But, as was the case boss at the defunct firm. Another is to lure
them to raise capital, they culled American during their previous offensive, the for­ staff with golden pay packages, buoying
assets and jobs. Their share of investment­ eigners still lack a clear competitive advan­ costs and attracting cowboys. The third is
banking fees in America has shrunk. Even tage, be it on the cost of capital, technology to take too much risk by accepting busi­
in their heyday, most outsiders never made or talent. Incumbents’ powerful brands ness locals do not want: Deutsche Bank, for
it into the top­five fee earners on Wall and deep local networks, meanwhile, al­ instance, continued to lend to Donald
Street. The one that did, Credit Suisse, has low them to lure customers and staff with­ Trump’s ventures long after rivals deemed
fallen from third in 2000 to sixth, and out taking on too much risk and cost. them to be too risky. It does not help that
looks set to recede further. In an attempt to compensate, challeng­ investment banking, especially in Ameri­
Still, as the Archegos debacle illus­ ers have often made three bad decisions. ca, is a more complex business than the
trates, foreigners have not fully given up One is to overpay for acquisitions. In 2000 foreigners are used to.
on Wall Street. Rock­bottom interest rates Credit Suisse offered about twice as much The odds are now stacked against them.

Buttonwood Red hot

The broader lesson from booming copper prices

B lessed are the cheesemakers. A

revival in restaurant visits in America
has fed demand for one of the more
Pedal to the red metal
Copper price, $’000 per tonne
one. Copper goes into the cabling for ev
charging stations, and into solar panels
and wind turbines. At present, annual
obscure financial instruments—cheese 10 “green” demand for copper is 1m tonnes,
futures. The number of contracts traded or just 3% of supply. Goldman reckons
on the Chicago Mercantile Exchange that will reach 5.4m tonnes by 2030.
8
surged last month. It is not only cheese For some people, the case for another
that has melted up. A year­long rally in commodity supercycle has more holes in
6
broader commodity markets shows few it than Swiss cheese. Policymakers in
signs of cooling. Iron­ore prices are at FUTURES China, the world’s largest consumer of
record highs. A boom in American hous­ 4
raw materials, are already putting the
ing has driven timber prices to a new brakes on. Without a boom in China,
peak. Corn and soyabean prices are at 2 there cannot be a supercycle. And high
their highest since 2013. commodity prices are often their own
If you are looking for a paradigm for 0 nemesis. The response in agricultural
the immediate post­virus economy, in 2010 12 14 16 18 20 22 25 products is simply to grow more crops.
which supply snags lead to higher prices Source: Refinitiv Datastream In the oil market, shale production can
as activity revives, then commodity ramp up if prices warrant it.
markets provide it. Bottlenecks are should respond to the spread between But copper supply is far less flexible.
everywhere. Corn production has been cash and future prices. In a backwardated It takes two to three years to expand
hurt by dry weather. The supply of indus­ market, the marginal benefit of adding to output at an existing copper mine and a
trial metals has been held back by slower copper stocks is low. So backwardation is a decade or more to develop a new one.
ore production in virus­hobbled South prompt for stocks to be run down to meet And mining firms, burned by the com­
American mines. The archetypal com­ immediate demand. It is a telltale sign of modities bust of the early 2010s, have
modity is copper, which has broad uses physical shortages. The opposite condi­ focused more on paying out dividends
in industry and construction. “Dr Cop­ tion, in which futures prices are above than on investing in new supply. “Capital
per” is closely watched in markets be­ spot, is “contango”. A market in steep discipline” is an industry slogan. It will
cause of its ability to diagnose important contango signifies a short­term glut. take further rallies in copper prices to
shifts in the world economy. Some analysts believe that the current chip away at this mindset.
Amid excitement about a new com­ copper shortage will prove to be a struc­ That brings us to the wider lesson.
modity “supercycle”, copper has one of tural feature. A recent note from Goldman The view of central bankers is that to­
the stronger bull cases. Plans for fiscal Sachs, a bank, predicts that prices will rise day’s supply shortages are likely to be
stimulus in America and Europe lean to $15,000 per tonne by 2025, from temporary and inflation will prove tran­
heavily towards greening the economy, $10,000 today, as the red metal undergoes sient. Recent history is on their side.
which in turn favours copper demand. A a new supercycle, a longish period in Supply shocks have generally washed out
bigger question­mark hangs over the which demand outstrips supply. The spur of inflation quickly. If this time proves to
supply response. Here Dr Copper may to rapid demand growth will come, not be different, it will be because of a pecu­
offer some uncomfortable lessons. from China, whose urbanisation lay be­ liar clash. Habits of capital discipline
Commodity prices are subject to wild hind the supercycle of the first decade of formed in the previous, slow­growth
swings, reflecting periodic gluts and this century, but from the greening of business cycle are not obviously well
shortages. The market for copper and richer countries. As a pliable, cost­effec­ suited to an economy running hot. As the
other commodities, including oil, is tive conductor of heat and electricity, cycle unfolds, copper prices will signify
currently in “backwardation”, a state in copper is a vital input to green tech. It just how smoothly supply is responding
which futures prices are below cash takes four or five times as much copper to to demand. Dr Copper’s most important
prices (see chart). In theory stock levels build an electric vehicle as a petrol­fuelled diagnosis may yet lie ahead.

009
 64 Finance & economics The Economist May 8th 2021

Investment banking has become a game of the same day. Foreign investors covered Women and investing
scale; the market value of bnp Paribas, Eu­ 75% of a €1.4bn ($1.7bn) offering that was
rope’s biggest investment bank by market more than three times subscribed. It was Rich pickings
capitalisation, is 17% of that of JPMorgan the largest rights issue by a European bank
Chase, America’s biggest. European banks since 2017, says Piraeus, and will more than
are no longer exempt from the leverage ra­ cover expected new bad debt this year.
tios that once constrained only American Not everyone agrees that Greece is on
rivals (an edge they held in the 2000s, be­ the path to financial respectability. Some
Older women are getting wealthier.
fore it backfired spectacularly). Their fickle observers are worried that the government
What does that mean for their bankers?
shareholders, who often slam the brakes at helped broker an alliance of so­called “cor­
the first sign of problems, do not help craft
consistent overseas strategies, says Ronit
Ghose of Citigroup, an American bank.
nerstone” investors in Piraeus: the family
office of John Paulson, an American former
hedge­fund manager; Telis Mistakidis, a
E lla prichard found herself rebuilding
the family fortune after Lev, her hus­
band of 46 years, died during the global fi­
This leaves European and Japanese former head of copper trading at Glencore, nancial crisis. She went from having little
champions in a tricky spot. They have be­ an Anglo­Swiss metals trader; and Helikon to do with the finances to firing the fam­
come too small to be global, but are too big Investments, a small fund based in Italy. ily’s longtime advisers at JPMorgan Chase,
to be regional players. One idea might be to Mr Paulson’s office increased its stake interviewing banks and eventually hiring a
merge their investment­banking arms into in the bank from just under 5% to 19.2% team at Brown Brothers Harriman. “That
a super­bank that can take on the Ameri­ and hopes to recoup losses on its earlier in­ move from smiling spouse to client was
cans. But, notes Stuart Graham of Autono­ vestments. Together with Helikon and Mr not easy,” the 80­year­old says.
mous, a research firm, shareholders would Mistakidis, it will be able to outvote the Older women like Ms Prichard control a
probably want to own the bank that gets Hellenic Financial Stability Fund (hfsf), a growing share of the world’s wealth. In
out, rather than the one that stays in. nominally independent repository for the 1989 the median American household
More likely, Europe’s big investment state’s shareholdings in the big banks. The headed by a woman over 65 was poorer
banks will muddle through. Some reckon three investors will, in effect, control the than average. By 2019 it was 20% richer.
progress towards a capital­markets union bank, says a veteran Greek banker. (Alex­ That partly reflects the fact that older wom­
and the rise of green finance will bolster ander Blades, a partner in Mr Paulson’s en today are more likely to have had ca­
Europe’s domestic market. (Japanese firm who sits on the board of Piraeus, says reers of their own than their mothers and
banks, whose home market remains tiny, that they intend to provide private­sector grandmothers. But inherited wealth also
cannot entertain such visions.) Yet Wall oversight to help the bank succeed.) plays a role—and indeed will become more
Street giants, which have been nabbing The hfsf cut its stake from 61% to important in the years to come.
market share in Europe of late, would also 25.6% by agreeing to limit its participation Some $68trn in wealth is estimated to
no doubt win some of the new business. in the rights issue, realising losses of change hands in America alone by 2042, in
The battle is being fought on the home €2.6bn. Its boss, Martin Czurda, an Austri­ large part as baby boomers die, according
front, too. n an banker who tried to protect the hfsf to Cerulli, a research firm. A lot of it will
from political interference, was ousted in flow first to widows, who in heterosexual
February. Curiously, the finance ministry couples tend to be younger and live longer
Greece then pushed through a law absolving hfsf than their husbands. Researchers estimate
staff of any criminal charges that might that about half of women over 65 outlive
Clean-up operation arise from the capital­raising. their husbands by 15 years. In a report last
Greek bankers already have reason to be year McKinsey, a consultancy, reckoned
grateful to the government. A tweak last that much of boomers’ wealth would be
year to the penal code banned the public managed by women by 2030. These huge
prosecutor from pursuing criminal inves­ transfers are forcing wealth managers,
ATHE NS
tigations of fraud and breach of trust at long used to serving men, to rethink their
The bumpy road to financial
banks, without a specific request from the approach to clients.
respectability
lender that allegedly suffered damages.

T hese are anxious days for Kyriakos

Mitsotakis, the Greek prime minister.
The country is due to welcome tourists
Probes involving more than 300 bankers
were closed; investigators say that none of
the banks asked for any to be pursued.
from around 35 countries from May 15th, Investors’ enthusiasm for Piraeus’s
but hotel bookings are looking thin and co­ share offering could at least signal interest
vid­19 lingers. Unless tourism recovers, the in officials’ efforts to clean up bad loans us­
economy will shrink for a second year. ing securitisations. Around €31bn of secur­
There is some good news, though. On itised dud loans, some backed by state
April 23rd s&p, a rating agency, upgraded guarantees, have been sold to asset manag­
the country’s sovereign rating to bb. (That ers at home and abroad. Another round of
is still below investment grade, which offi­ sales of similar size is expected soon.
cials expect to reach next year.) The agency But it could all have been so much easi­
also upgraded the country’s four big banks, er, says Miranda Xafa of the Centre for In­
though all remain in junk territory because ternational Governance Innovation, a
of high levels of non­performing loans. think­tank. In 2015 the eu allocated €25bn
These came to about 33% of the banking to fully recapitalise the banks, as part of
sector’s loan book, before provisions—the Greece’s third bail­out programme. Only a
legacy of the debt crisis of 2010­18. fifth was disbursed. “With hindsight, early
Piraeus, the largest and most fragile recapitalisation would have helped clean
lender, won a breathing space thanks to an up balance­sheets sooner, making room
unexpectedly successful capital raising on for new lending to support the recovery.” n In search of a new adviser

009
 The Economist May 8th 2021 Finance & economics 65

There is little evidence that older wom­ with a section on getting into investors’ experimentation seem likely to extend be­
en invest drastically differently than men, hearts and minds. yond older women. Financial decisions are
or have radically different views towards Another approach is to offer more fe­ no longer the preserve of men alone. Wom­
risk or asset allocation. The stereotype may male­friendly service. On a superficial lev­ en control about a third of household
be of a kindly, cautious granny. But Ameri­ el, golf is out, and spa days are in. Most wealth in America, and the share is likely
can tax data suggest that wealthy older banks are hiring more women and training to rise. Surveys suggest that millennial in­
women are as likely to hold stocks, which advisers to interact with families, not just vestors too want financial education and,
are riskier than bonds, as the average rich men, and to manage personal conversa­ when they seek advice, want it to be tai­
person. Women seem to place more em­ tions better. lored to them. The firm that adapts the
phasis on sustainable investing, but seem No one knows yet what strategy will fastest could reap the rewards for genera­
less bothered by charity. A global survey by prove most successful, but the gains from tions to come. n
the Economist Intelligence Unit, our sister
organisation, found that 22% of boomer
women think charitable giving is not im­
portant to how they manage their wealth,
compared with 16% of men.
What is clear is that boomer women
want a different experience at the bank.
Many women say they resented the way
advisers treated them when their hus­
bands were still alive, making no eye con­
tact at meetings or printing just the one co­
py of financial reports. Once they are call­
ing the shots, they want personal service.
In a recent McKinsey poll of rich investors,
over half the women surveyed said it was
“extremely important” to find an adviser
who matches their personality, compared
with around 40% of men. Advisers say
these women want help meeting goals, be
that paying grandchildren’s college fees or The economics of prisons
buying another home in Cap Ferrat, not
just beating the market.
The parent trap
Another requirement seems to be fi­
nancial education: three­quarters of
Could sending criminals to prison be good for their kids?
wealthy widows and divorcees say they
don’t feel knowledgeable about investing,
according to a survey by ubs. The problem
may be confidence rather than compe­
I n a forthcoming paper in the Amer-
ican Economic Review, one of the dis­
cipline’s most prestigious journals, three
comes, not all of which are improved by a
parental stay in prison. The “estimates
on academic performance and teen
tence, though. Women think it is really im­ economists conclude that “[p]arental parenthood are imprecise,” the authors
portant not to shoot from the hip, says incarceration has beneficial effects on say. But a parent’s incarceration lowers
Sharon Oberlander of Merrill Lynch Wealth some important outcomes for children.” the chance of their child going to prison
Management. Unsurprisingly the study has provoked from 12.4% to 7.5%. It also appears to
Banks are sitting up. Wealth manage­ outrage from keyboard warriors. Some cause the children to go on to live in
ment, which generates steady fees and are uncomfortable with the very notion better­off neighbourhoods, which could
does not require as much capital as lend­ that prison could have anything other be a sign that household earnings rise.
ing or trading securities, is an increasingly than wholly malign effects. Others worry Perhaps having a parent go to prison
important part of their business. And dis­ that the research, however well inten­ scares a child straight; or perhaps remov­
satisfied clients, like Ms Prichard, vote tioned, gives politicians ammunition to ing a bad influence from a family allows
with their feet: over a fifth of widows who double down on punitive penal policy. In those left behind to thrive.
had a financial adviser with their hus­ reality, though the study has some un­ Does this mean that America would
bands go on to find a new one, reckons a comfortable findings, it should help benefit from even tougher penal policy?
survey by Spectrem Group, a research firm. governments devise better policy. Hardly. The paper’s findings suggest that
Losing a client means losing a shot at man­ The authors analyse 30 years’ worth of the overall costs of the prison system,
aging her heirs’ wealth, too. high­quality administrative data from including the money spent on housing
Banks are trying lots of things in re­ the state of Ohio. They study children inmates, are likely to outweigh the bene­
sponse. One is simply to understand what whose parents are defendants in a crimi­ fits. The true messages of the paper are
clients want. ubs produces reams of re­ nal case. Using a clever methodology, subtler. Any effort to reduce America’s
search on female investors. Goldman they in effect divide the children into two sky­high incarceration rate, though
Sachs tells its advisers to get to know the groups, which are identical except in one noble, would need to reckon with the
accountants and lawyers of the ultra­rich; crucial respect: whether or not one of costs that it might impose on some
JPMorgan’s training for advisers begins their parents was sent to prison. In some children. It is a sorry state of affairs that
cases, parents who committed relatively American kids could stand to gain when
Correction In a leader last week (“Biden’s taxing minor crimes were on the wrong side of their parents are locked up. The chal­
problem”) we wrote that nearly half of the earnings harsh judges, whereas others got off lenge for economists and politicians is to
of investors in American pass-through entities are
classified as dividends or capital gains. In fact, the
scot­free for the same offence. find policies to help them that are not as
figure applies only to partnerships, not to all The paper reports a number of out­ socially destructive.
pass-throughs. Sorry.

009
 66 Finance & economics The Economist May 8th 2021

Free exchange Escape from the city

A new age of suburbanisation could be dawning

that prevented housebuilding from keeping up with demand.
Highly paid elites were concentrated in pockets of wealth, while
many other Americans settled in places offering jobs of middling
productivity and pay, but where housing was more affordable.
Though it is early days yet, covid­19 may have disrupted this
pattern. Before the pandemic, about 5% of full­time­work days in
America came from people working at home. That figure rose
above 60% last spring; though it has since fallen back, it remains
well above pre­pandemic levels. Broad adoption of remote work
stands to drastically alter households’ locational calculations. Re­
cent research by Jan Brueckner of the University of California, Ir­
vine, and Gary Lin and Matthew Kahn of Johns Hopkins University
considers two ways in which a transformation might unfold. Peo­
ple with high­productivity jobs could work remotely from any­
where, potentially severing the link between a local economy’s
productivity and the demand to live there, and thus enabling a
large­scale migration from high­cost cities to low­cost ones. And
remote work could allow workers to spend more time at home
while still occasionally commuting into the office. In that case, re­
mote work would reduce the cost of a given commute and might
thus lead metropolitan areas to become more sprawling.
In fact, both appear to be occurring. In 2020 price gradients

T hough the pandemic has not fully released its grip on Amer­
ica, signs of an incipient boom are everywhere: in surging de­
mand for workers, imports and, above all, houses. Residential
flattened between metropolitan areas, as house prices in low­cost
cities rose faster than those in high­cost cities, and also within
them, as prices in low­cost suburban counties rose faster than
property prices rose at an annual rate of 12% in February—the fast­ those in high­cost urban ones. Another recent paper, by Arpit Gup­
est pace since 2006—buoyed by rising incomes, low interest rates ta and Jonas Peeters of New York University and Vrinda Mittal and
and the belated plunge into housing markets by a crisis­battered Stijn Van Nieuwerburgh of Columbia University, arrives at a simi­
generation of millennials. A clear preference for large but afford­ lar conclusion. In the year to December 2020 and across America’s
able suburban homes over pricey city­centre flats seems to be 30 largest metropolitan areas, house prices rose faster the farther
emerging. That covid­weary Americans might be eager for subur­ one moved from urban hubs. Prices of properties 50km from a city
ban life is hardly surprising. Yet the latest pursuit of leafiness and centre grew by 5.7% more than those in centres.
expansive floor plans contains hints of a potentially transform­ Whether these trends continue depends on the extent to which
ative shift in how Americans choose where they live. remote­working habits stick. But even a modest persistent change
People’s housing decisions incorporate much more than mere would have large knock­on effects. One recent estimate, by Jose
economic concerns. Yet the geographical distribution of house­ Maria Barrero of the Instituto Tecnológico Autónomo de México,
holds reflects some rough balancing of the costs and benefits of Nicholas Bloom of Stanford University and Steven Davis of the
living in one place rather than another. Other things equal, people University of Chicago, suggests that the share of hours worked re­
flock to areas that provide access to good jobs or desirable amen­ motely is likely to stabilise at about 20%. In that case, dense city
ities, like pleasant weather, or a lively arts scene. Movement to­ centres could face a cycle of straitened circumstances like that
wards attractive places is ultimately checked, however, by the as­ which accompanied car­driven suburbanisation, as local spend­
sociated costs—congestion, say, and the price of housing—which ing and tax revenues decline, leading to cutbacks in amenities.
rise until there is no longer much to be gained from relocating. Spending within city centres could drop permanently by 5­10%.
From time to time, however, economic shifts disrupt the pre­
vailing equilibrium and trigger large­scale movement. In the Sometimes I wonder if the world’s so small
mid­20th century cars and highways enabled people to obtain A new equilibrium might also yield striking macroeconomic
more for their money by moving into suburbs while still main­ benefits, however. Slow growth in housing supply in high­pro­
taining access to city­centre jobs and amenities. Explosive ductivity cities has weighed on the economy by rationing access to
suburbanisation followed. In 1940 about half of Americans lived high­wage jobs. Had building rules in New York and the Bay Area
in metropolitan rather than rural areas, and most metropolitan been no stricter over the last third of the 20th century than those
residents—about one­third of the total population—resided in ci­ of the typical American city, then the growth rate of national out­
ty centres rather than suburbs. By 2000, in contrast, 80% of all put would have been a third higher, according to one estimate. Re­
Americans lived in metropolitan areas, but the vast majority—ac­ mote work stands to relax this constraint on growth, by allowing
counting for half the total population—lived in the suburbs. workers to take high­wage jobs without having to buy costly
In the past two decades, shifts in demand have given rise to a homes within easy commuting distance.
new equilibrium. Rising incomes in knowledge­economy indus­ The geographically disruptive potential of information tech­
tries attracted workers to a few highly productive places (like New nology has long been apparent. In a book published in 1997 Fran­
York and the Bay Area), and increases in congestion and commut­ ces Cairncross, formerly of this newspaper, imagined that it might
ing costs encouraged many to live near work. Housing costs in yield a “death of distance”. It may have taken the public­health im­
high­wage cities rocketed, propelled by restrictive zoning policies perative to stay away from others to help realise it at last. n

009
 Science & technology The Economist May 8th 2021 67

Back-ups for GPS bient electromagnetic radiation, as engi­

neers like to put it. This makes them vul­
Locking out the bad guys nerable to interference, both accidental
and deliberate. The more uses which gnss
constellations are put to, the more this
matters. So those engineers are looking at
ways to harden and back up the whole idea.
Jamming sometimes happens acciden­
Global-navigation satellite systems such as gps are under threat from jamming,
tally. In January, for instance, it emerged
both accidental and deliberate. Alternatives are needed
that gps failures which had been plaguing

T he phrase “critical infrastructure”

conjures up solidly earthbound imag­
es: road and rail networks, water and sew­
application of water and fertiliser in preci­
sion agriculture. But global­navigation sat­
ellite systems (gnss), to give their collec­
aircraft near Wilmington International
Airport, in North Carolina, were caused by
wireless equipment at an unnamed nearby
age pipes, electricity grids, the internet, tive name, now do much more than that. utility. gnss networks are also vulnerable
and so on. Such stuff is so wound into the By acting as clocks that broadcast the time to “natural” jamming by the arrival from
warp and weft of life that it is simulta­ accurate to within a few dozen nanosec­ the sun of coronal­mass ejections of elec­
neously both essential and taken for grant­ onds, they are crucial to jobs ranging from trically charged particles. Most often,
ed. One piece of infrastructure which has co­ordinating electricity grids and mobile­ though, jamming is deliberate.
become critical over recent decades, phone networks to time­stamping finan­ Local problems can be caused by perso­
though, is anything but earthbound. This cial transactions and regulating the flow of nal privacy jammers (ppjs). These are de­
is the various constellations of satellites, information in and out of data centres. vices—widely available for sale even
the most familiar of which is probably though generally illegal to use—which
America’s Global Positioning System (gps), Location, location, location scramble gps signals to stop vehicles being
that orbit about 20,000km above Earth, gnss networks do, though, have a weak tracked by nosy employers or suspicious
broadcasting to the world precisely where spot. The satellites’ transmitters broadcast spouses. Thieves also find them useful.
they are and exactly what time it is. with the wattage of a refrigerator lightbulb. They are, for example, involved in 85% of
The original purpose of the gps and its Their signals are so vanishingly faint that vehicle thefts in Mexico.
European (Galileo), Russian (glonass) and they arrive “beneath the noise floor” of am­ Further up the commercially available
Chinese (BeiDou) counterparts was to en­ scale are wide­area jammers. These de­
able suitably programmed receivers on or vices, which are about the size of suitcases,
→ Also in this section
near the ground to calculate their where­ do have legitimate quasi­civilian uses,
abouts to within a few centimetres, by 68 The oldest grave in Africa such as protecting potential targets, public
comparing signals from several satellites. or private, from attack by gnss­guided
69 The science of roadkills
In this role they have become ubiquitous, drones or missiles. But misused, whether
running everything from the navigation 69 Diagnosing depression deliberately or accidentally, they can dis­
systems of planes, ships and automobiles, rupt gnss across an area the size of a city.
70 How to knit a road
both military and civilian, to guiding the In this context it is notable that the north­

009
 68 Science & technology The Economist May 8th 2021

ern Black Sea, where many Russian big­ try’s armed forces to generate “resilient The timekeeping and positioning data
wigs, supposedly including the country’s and survivable” positioning and timing ca­ offered by Satelles’ system are, respective­
president, Vladimir Putin, have country pabilities by 2023. ly, a little, and notably less, precise than
estates, is a hot­spot for gnss outages that One approach to doing so is to upgrade gnss. But because Iridium satellites orbit
affect shipping in the area. the satellites themselves. America’s air at a mere 25th of the altitude of gnss con­
At the high end of gnss disruptors are force, for example, has begun launching a stellations, the signals from them are more
military systems, which can muddle sig­ generation of new “gps III” satellites built than 1,000 times stronger, thus shortening
nals for hundreds of kilometres around. by Lockheed Martin, a defence giant. The jammers’ effective ranges. Satelles’ clients
Collateral effects from these are a growing first of these began transmissions in Janu­ are concentrated in America. That, says
problem. A paper published in March by ary. gps III offers somewhat stronger sig­ Michael O’Connor, the firm’s boss, is where
Eurocontrol, an air­traffic­control body nals than its predecessor. But its main ad­ the realisation, “oh shoot, we need back­
based in Brussels, noted a “massive rise” in vantage is an encryption system, the de­ ups”, has taken greatest hold. He says,
gnss interference reported by airline pi­ tails of which remain classified, that though, that if Satelles had clients in Seoul,
lots. In 2019 the number of recorded inci­ makes those signals more resistant to jam­ they would continue to receive signals
dents reached 3,564—nearly 22 times more ming. Both of these features will help mil­ during North Korea’s periodic jamming of
than had been noted two years previously. itary users. They will, however, be of less the city.
Most hotspots were near war zones. But use to civilians, who will not be able to Spoofing can be made harder, too. A
long­range jammers are also used deliber­ benefit from the encryption. Belgian firm called Septentrio is designing
ately for low­level “asymmetric” warfare. anti­spoofing antennae that can distin­
South Korea’s capital, Seoul, for instance, Signalling for help guish signals which have come from the
often experiences gnss outages for which Private enterprise is, however, coming to sky, and thus carry tiny distortions im­
the only plausible explanation is jamming the rescue of those who are willing to pay posed by the ionosphere, from cleaner
from North Korea, the border with which is for reliable geolocation and time stamping ones generated nearby on the ground as
only about 40km away. by pressing alternative satellite networks spoofs. Septentrio’s wizardry relies on
All this jamming, both actual and con­ into service. Satelles, a firm in Virginia, is hardware in the form of a complex array of
ceivable, together with the more subtle using Iridium, a constellation of 66 satel­ conductors and insulators inside the an­
problem of spoofing, in which bogus gnss lites orbiting at an altitude of just 800km, tennae. But software can do the job as well.
signals are generated to confuse naviga­ to re­broadcast encrypted time data sent America’s Department of Homeland Secu­
tion systems, has led to a search for alter­ from a network of high­precision clocks rity recently released a set of algorithms
native, more robust means of geolocation on the ground, together with data about intended to help signal engineers develop
and time­stamping. In America that search the satellites’ locations (thus mimicking anti­spoofing programs, and Galileo’s
has been reinforced by the National De­ the functions of a gnss network), to clients masters are testing, with help from Septen­
fence Authorisation Act, which became including telecommunication firms, data trio, what is intended to become a publicly
law on January 1st. This obliges the coun­ centres, stock exchanges and banks. available anti­spoofing encryption service
called Open Service Navigation Message
Authentication, or osnma.
The securest approach of all, though, is
surprisingly old­fashioned. It is to back
gnss up with systems on the ground. And
the development of cheap, reliable atomic
clocks makes this increasingly possible.

Light the beacons

Orolia, a French firm that makes such
clocks for satellites, reports high demand
for a line of ground­based versions called
miniaturised rubidium oscillators, which
went on sale last June. These have half the
volume of a pack of cigarettes, so are wide­
ly deployable. According to Thierry Del­
homme, Orolia’s European general manag­
er, they typically drift less than a microsec­
ond per day. That is not bad for a unit sold
for a few thousand dollars (as opposed to
the $1.5m cost of the best clocks used in
satellites), and would certainly tide a user
An early burial
over a temporary outage. But anything
These are the remains of an infant Homo sapiens, nicknamed Mtoto by their discover- more than a day or two and even one of
ers, found buried in Panga ya Saidi, a complex of caves near Mombasa, Kenya, in 2013. these new devices would get sufficiently
They are 78,000 years old, making them the most ancient human burial yet unearthed out of synch with reality to cause trouble.
in Africa. The lefthand group of bones are the child’s spine and thorax; those to the opnt, a Dutch company, has another
right, the skull and some vertebrae. They were excavated and analysed by a team led idea. This is to deliver the precise time as
by researchers from the National Museums of Kenya and the Max Planck Institute for signal pulses sent through fibre­optic ca­
the Science of Human History, in Jena, Germany, who published their findings in this bles, rather than by satellite. That could be
week’s Nature. Mtoto, whose sex cannot be determined but whose name means “child” done using existing fibre­optic networks,
in Swahili, was about three years old. That the burial was deliberate seems clear. The by isolating one strand within a cable and
skeleton was in a circular pit and the child is thought, from the way the bones were dedicating it to the purpose.
arranged, to have been laid out with its head on a pillow. To turn the clock back properly, how­

009
 The Economist May 8th 2021 Science & technology 69

Biomarkers for depression

Ecology

Roadkill stew Unlucky 13

A novel way to sample an area’s animals

T raffic and wildlife do not mix.

Anyone who keeps an eye on the
verges while driving along a country road
A blood test may improve the diagnosis
and treatment of depression
knows that. But such carnage does bring
zoologists an opportunity. Counting
roadkills is a rough and ready way of
M ajor depression is a serious illness,
but also an elusive one. It wrecks lives
and may drive people to suicide. It some­
sampling local animal populations, and times, though not always, alternates with
is the basis of so­called citizen­science periods of mania in a condition called bi­
endeavours such as Project Splatter, in polar disorder. And it is disturbingly com­
Britain, in which members of the public mon. Reliable figures are hard to come by,
report what they have found dead on the but in some parts of the world as many as
road, and where. one person in four experiences major de­
Pablo Medrano Vizcaíno and Santiago pression at some point during their life.
Espinosa at the Catholic University of Depression’s diagnosis has, though, a
Ecuador, however, have taken the matter worryingly arbitrary quality to it, depend­
further by going out to look for them­ ing as it does on a doctor’s assessment of a
selves. And, as they report in Biotropica, patient’s mood against a checklist of symp­
monitoring roadkill can yield informa­ toms which may be present in different
tion about creatures that are otherwise combinations and are often, in any case,
almost completely elusive. subjective. This has led to a search for reli­
Once a week, for six months, Mr able biochemical markers of the illness.
Medrano Vizcaíno and Dr Espinosa sur­ Snake’s alive! Not only might these assist diagnosis, they
veyed three 33km segments of roads may also improve assessments of progno­
weaving in and around tropical forests vidual species require specialist identifi­ sis and point towards the most effective
and mountains near the Ecuadorian cation. But studying roadkill might be a treatment in a particular case. Now, a
national parks of Cayambe Coca and way of adding to knowledge about them. group of neuroscientists at Indiana Uni­
Sumaco Napo­Galeras. Every time they More extraordinary than this, among versity, in Indianapolis, led by Alexander
came across a dead animal they stopped, the 88 reptiles seen by Mr Medrano Viz­ Niculescu, think they have found a set of
photographed it, noted its gps co­ordi­ caíno and Dr Espinosa, one was a snake markers that can do all this.
nates and identified it as accurately as previously unknown to science. They As they write in Molecular Psychiatry, Dr
possible. If they could not manage a field also found an example of the northern Niculescu and his colleagues have been
identification, they collected the carcass tiger cat, a species thought to be on the working with data and blood samples col­
and brought it back to their laboratory for brink of extinction. lected over the course of 15 years from hun­
further study. A sampling method that relies on dreds of patients at the Indianapolis Veter­
In total, they found 445 specimens. finding endangered animal species dead ans Administration Medical Centre. The
Some, such as the 153 opossums, were the is obviously suboptimal. But Mr Medra­ targets of their investigation were small
sorts of large critter that the average no Vizcaíno and Dr Espinosa hope that pieces of rna, a molecule similar to dna
passer­by might notice. But many were one outcome of their work might be to which is copied from the dna of genes as
not. There were, for instance, 43 amphib­ identify roadkill hotspots, and then try to part of the process by which the informa­
ians. Frogs are common in tropical for­ find ways to discourage animals from tion encoded in those genes is used by cells
ests, but by and large these were not going there. to make proteins.
frogs. Rather, some 80% of them were That could, though, be tricky. The Tracking levels in the blood of relevant
caecilians, a little­understood group of data they have collected so far suggest rna molecules shows the activity of the
wormlike burrowing animals. Ecuador these hotspots are often bridges over underlying genes. That let the researchers
harbours 24 species of caecilian. Exactly rivers. If the creatures themselves are identify, in an initial sample of 44 patients’
which of them were represented in the using these as crossing­points, deterring records, which genes were becoming more
researchers’ collection is hazy, as indi­ them from doing so might be difficult. and less active as people’s mood disorders
waxed and waned. To start with, they
found thousands of possible candidate
ever, some people are trying to revive the smaller scale, private enterprise is inter­ genes in this way, but they first narrowed
idea of land­based navigation beacons ested, too. NextNav, a firm based in Silicon these down to those that seemed to show
similar to the Loran (long­range naviga­ Valley, is building in San Francisco a net­ the best prediction of mood and then, by
tion) towers used by the American and work of about 100 small beacons that will turning to the corpus of published re­
British navies during the second world broadcast timing and position signals search on genes associated with depres­
war. According to George Shaw of the Gen­ around the city. This network’s density, sion, narrowed the selection still further to
eral Lighthouse Authorities of the uk and and the fact that it can draw power from 26 that had previously been suspected of
Ireland, which runs the British Isles’ coast­ the grid rather than relying, as gnss satel­ involvement in the illness. They then fol­
al­navigation system, several countries are lites do, on solar panels, means that the lowed this clutch up in eight groups of pa­
now constructing enhanced “eLoran” net­ signals are roughly 100,000 times stronger tients, ranging in size from 97 to 226, to see
works. These include China, Iran, Russia, than those from such a satellite—and thus which best predicted the course and de­
Saudi Arabia and South Korea. And, on a hard to jam or spoof. n tails of a patient’s illness.

009
 70 Science & technology The Economist May 8th 2021

Thirteen markers survived this final Civil engineering various materials for the string, settling
winnowing. The genes they represent are eventually on recycled textiles reinforced
involved in a range of activities, including How to knit a road with polyester, a type of plastic. Polyester
running circadian rhythms (the endoge­ resists rotting and can also be recycled, al­
nous clocks which keep bodily activities though the group hope to find biological
synchronised with each other and with the materials which can do the same job.
daily cycle of light and darkness); regulat­ They got the idea of knitting roads from
ing levels in the brain of a messenger mole­ work carried out by the Gramazio Kohler
Researchers find a way to make roads
cule called serotonin, the activity of which architectural research group at eth, a uni­
with string
is well known to get out of kilter in depres­ versity in Zurich. In one of this group’s pro­
sion; responding to stress; metabolising
glucose to release energy; and signalling
within cells.
S ince the Romans began doing it with
great panache more than 2,000 years
ago, road­building has been a sweaty, grub­
jects, led by Gergana Rusenova, now at
Swinburne University of Technology, in
Australia, a Stonehenge­like structure with
Together, these 13 rna markers form the by business, involving heaving great quan­ 11 columns was built in a similar way. A mo­
basis of a blood test that can not only diag­ tities of rocks and stones into place and, in bile robot, which moved on caterpillar
nose depression, but also predict who will more recent times, covering the surface tracks, laid down 120km of string in geo­
go on to develop bipolar disorder, who is with asphalt or concrete. Now a group of metric patterns while 30 tonnes of crushed
likely to become ill enough to need hospi­ Swiss researchers think they have come up stones were added. The resulting three­
tal treatment in the future, and which with a more elegant solution. Strange as it metre­high columns comfortably support­
drugs will most probably be effective in may seem, this involves knitting. ed a nine­tonne capping stone.
particular cases. Six of the rnas were good Martin Arraigada and Saeed Abbasion There is, though, some way to go before
predictors of depression alone. Another of the Swiss Federal Laboratories for Mate­ knitted roads become a commercial propo­
six predicted both depression and mania. rials Science and Technology use a robotic sition, cautions Dr Arraigada. He and his
One predicted mania alone. arm to lay out string in a series of elaborate colleagues are testing various set­ups and
On top of their potential role in diagno­ patterns. As the knitting takes shape, lay­ modelling on a computer how different
sis, three of the genes identified are known ers of stones are added and tamped down. patterns of string can be used to hold the
from previous work to be affected by lithi­ The string entangles the stones, keeping stones. They will then carry out more
um carbonate, an established treatment them in place. The result is a structure that tests—including ones that apply the sorts
for bipolar disorder, and two others are af­ is surprisingly stable and strong. In one ex­ of rolling pressure generated by the wheels
fected by a class of antidepressant drugs periment a section of pavement put to­ of moving vehicles.
called selective serotonin reuptake inhibi­ gether in this way withstood a load of half a Concrete and asphalt road surfaces are
tors, of which Prozac is probably the best­ tonne. The encapsulated stones hardly usually impervious to water, and are
known example. It is for this reason that Dr moved at all. shaped so that rain flows off them into gut­
Niculescu thinks his blood test may help to Roads and pavements are usually made ters running alongside. If water gets
pick appropriate treatments. from layers of different grades of sand, caught in surface cracks, it can cause pot­
gravel and stones. Once these are in place holes—especially if it freezes and thereby
Tests of reason the surface is treated with an aggregate expands, opening up more cracks. Binding
The results even indicate some non­psy­ that is sealed and bound together with ce­ aggregates with string would produce a
chiatric drugs that might be worth trying, ment to form concrete, or mixed with bitu­ permeable road surface, which might re­
since the analysis showed they had charac­ men to make asphalt. Neither method is sult in fewer potholes. It might have other
teristics which could affect some of the environmentally friendly. Making cement advantages, too. The researchers think, for
biomarkers. A beta blocker called Pindolol, produces huge amounts of carbon dioxide, example, that a porous road could help wa­
for example, is currently used to treat high while bitumen, a sticky tar­like substance, ter reach the subsoil below, reducing the
blood pressure. But this drug is also known is obtained from oil. impact that covering so much land with
to affect serotonin activity, and Dr Nicules­ Knitting roads creates fewer emissions. roads has on local hydrology. Just like knit­
cu and his colleagues found, from a search And the stones and string are easily recy­ ting a nice cardigan, success will depend
of the published literature, that it has been clable, says Dr Arraigada. The group tried on starting with a good pattern. n
seen to affect levels of all six of the depres­
sion­only biomarkers. That, he thinks,
might make it a good candidate for the
treatment of depression.
To turn all this into practical help for
patients, Dr Niculescu and his colleague
and co­author Anantha Shekhar have
founded a company called MindX Sciences
and are seeking regulatory approval for the
test’s medical use. If all goes well, future
versions might incorporate additional bio­
markers, and might use saliva rather than
blood as the fluid sampled. Biomarker­di­
agnosis of depression is unlikely to replace
assessment by checklist, which would still
be needed to see who should be sent for
screening in the first place. But as a way of
confirming and refining diagnoses, and al­
so of suggesting treatment in what is both
an uncertain and a sensitive area, it seems
an important advance. n Gordias eat your heart out

009
 The Economist May 8th 2021 71
Books & arts

→ Also in this section

72 Rachel Cusk’s new novel
73 Albrecht Dürer’s imagination
73 The causes of disaster
74 Johnson: Really hard languages

“The Brothers Karamazov” on stage only the first part of a “life­chronicle” of

Alyosha. “The principal novel is the sec­
Sins of the fathers ond—an account of my hero’s doings in
our own times, that is to say, at our pre­
sent­day current moment.” The book was
published in 1880; Dostoyevsky died that
winter and never revealed what happens to
Alyosha in the “present day”. According to
ST PETE RSBURG
some accounts, the character was to be­
A masterful director brings Dostoyevsky’s characters into the Russian 21st century
come a revolutionary and help kill the tsar

A spotlight searches the dark stage of

the Maly Drama Theatre in St Peters­
burg. It picks out a young man in a monk’s
sive, passionate and archetypally Russian
eldest, or Ivan, a cold, rational Westernised
intellectual who repudiates God before go­
before being executed himself.
Neither did Dostoyevsky live to see the
real­life assassination of a tsar later in 1881
robe sitting on a chair, a suitcase on his lap. ing insane and conversing with the devil. or the murder of another during the Rus­
He rises, changes into secular clothes and Alyosha, a blushing monk who shuttles be­ sian revolution. But his anguished writing
steps towards a metal wall. The wall, in tween the brothers and their lovers, carry­ is widely thought to have anticipated the
turn, moves towards the character; he ing messages and receiving confessions, horrors of the 20th century. Mr Dodin, who
passes through it, as if being x­rayed, and can seem too wholesome to vie with his was born in 1944 into a Jewish family that
into the world of Fyodor Dostoyevsky’s siblings for attention. had fled the siege of Leningrad, has lived
final novel, “The Brothers Karamazov”. Yet in a short introduction it is Alyosha and worked in their shadows. Four years in
The monk is Alyosha, youngest of the whom Dostoyevsky names as his main the making, his version of “The Brothers
three legitimate sons of Fyodor Karama­ character. Lev Dodin, one of Europe’s great­ Karamazov” is less an adaptation than an
zov, an avaricious “buffoon” who wallows est theatre directors, agrees. “The intro­ engrossing conversation with an author
in sin and is murdered by one—or more— duction is perhaps the most important part who has preoccupied him all his life. Al­
or all—of his offspring. Karamazov has a of the novel for me,” he says. Marking the most all the words come from Dostoyev­
fourth, illegitimate son, Smerdyakov, an author’s bicentenary, his production dis­ sky, but the arrangement is Mr Dodin’s. In
epileptic servant whose mother, a home­ tils the 1,000­page saga into a three­hour that opening sequence, he places Alyosha
less halfwit, he raped. The story of patri­ spectacle, sweeping audiences from in the “current moment”, then sends him
cide has the outline of a country­house breathless passion to the darkest recesses back into the world of the novel.
murder mystery. But in what became one of the human condition. A gripping re­ Alyosha’s father and brothers emerge
of the world’s most influential novels, Dos­ imagining of an elemental tale, it evokes from beneath the stage, as though brought
toyevsky, who was born 200 years ago in traumas fictional and real, in Dostoyev­ back from the dead. A timeless heap of old
1821, weaves in profound themes of faith, sky’s era and today’s. And here, sweet, de­ chairs in the corner are the principal props.
temptation and inherited guilt. vout Alyosha is the greatest sinner of all. Mr Dodin dispenses with many of the
Of the three brothers, readers usually Set in the mid­19th century, “The Broth­ book’s characters, retaining only the men
sympathise most with Dmitry, the impul­ ers Karamazov”, wrote Dostoyevsky, was of the Karamazov household and two

009
 72 Books & arts The Economist May 8th 2021

women who are the source and subject of self, “the more I love humanity in general, is bound to go up to the top one.” Virtue is
love, lechery and hatred. Stripped down to the less I love man in particular.” He is the merely a mirage, and unbridled human na­
its essence, this is strictly a family affair, ultimate Karamazov brother, he realises, ture can divert even the best intentions.
the looming sense of an ancestral curse re­ the embodiment of all three in one. “It is Afterwards, Alyosha sits between Grush­
calling Greek tragedy. There is no small not that I rebel against my God,” he says, enka’s spread legs, the tableau suggesting a
talk. Played by the virtuoso actors of Mr echoing Ivan’s views, “but I don’t accept sexual clinch but at the same time, shock­
Dodin’s regular ensemble, the characters and can’t accept the world He has created.” ingly, resembling an icon of the Madonna.
get straight down to business. “Have you Alyosha gives in to temptation, convulsing As Mr Dodin summarises, in this story,
come to save the world? I don’t think that is in shame and ecstasy when Grushenka— “people don’t just talk about Hell”. They are
possible,” Ivan tells Alyosha. his brother Dmitry’s mistress and the ob­ living in it.
Not only will Alyosha fail to save the ject of his father’s lust—seduces him. Dressed in period costumes, Mr Dodin’s
world; in the play, at least, he discovers “I am the same as you in kind,” he tells characters make no explicit comment on
that it is not worth saving. He learns that all Dmitry, who observes this scene. “The lad­ contemporary Russian politics. But as with
these people who profess to live, die and der’s the same. I’m at the bottom step, and all great art, the production is a cardiogram
kill for love in fact love nobody. As for him­ you’re above…Anyone on the bottom step of its time, registering modern Russia’s
rhythms and defects. Dostoyevsky, says Mr
Dodin, is always an inescapable presence,
Allusive fiction “but today he is screaming”, amid “the
Second is nowhere crushing of humanism, the cliff­edge of
despair”. The life unfolding on stage pul­
sates with energy. Equally, the world of the
play is devoid of kindness or mercy.

Second Place. By Rachel Cusk. Farrar, Into the darkness

Straus & Giroux; 192 pages; $25. Faber; The contrast with another celebrated pro­
£14.99 duction is telling. In 1910 the Moscow Art
Theatre, under the brilliant leadership of

“I once told you, Jeffers, about the

time I met the devil on a train leav­
ing Paris.” Rachel Cusk’s latest novel,
Konstantin Stanislavsky and Vladimir Ne­
mirovich­Danchenko, put on a version of
“The Brothers Karamazov” that spread over
“Second Place”, begins with this arresting two evenings. Hailed as a milestone in
recollection. At the end of the book a Russian cultural life, it captured a wide­
brief note informs readers that it “owes a spread premonition of cataclysm yet was
debt to ‘Lorenzo in Taos’, Mabel Dodge filled with compassion. Critics likened it to
Luhan’s 1932 memoir of the time D.H. an epic mystery play. “The spirit of God is
Lawrence came to stay with her in Taos, in the air,” thought Alexandre Benois, a
New Mexico”. It is not necessary to be writer and artist, who was reminded of ec­
familiar with this antecedent, however, clesiastical light and Easter bells. For Stan­
to enjoy the oddly compelling (if in­ islavsky and Nemirovich­Danchenko, the
termittently baffling) story that Ms Cusk story “opened the door not so much to
tells in the pages in between. Greek tragedy, but to the Bible”.
Only ever referred to as M, the narra­ Strange meeting Mr Dodin reveres their theatre and
tor is living happily with her second shares its aim of excavating the truth. But
husband Tony “in a place of great but brings along a gorgeous young girlfriend, he does not open any biblical doors. There
subtle beauty” in an unnamed country. It Brett, whom he hadn’t mentioned. M’s are no Easter bells. There is no God and no
is 15 years after she encountered the devil attempt to confront him over this leaves devil here, “only destiny”, as Smerdyakov
(Jeffers, to whom she confides this hallu­ her feeling “acutely conscious of my own says when confessing to finishing off old
cinatory experience, is her implied in­ unattractiveness, as I would in all my Karamazov. Doubling as a suicide­note, his
terlocutor throughout). Ms Cusk keeps dealings with L”. His arrival also means speech is addressed as much to the audi­
the details of the landscape vague but the that M has to turf Justine, her 21­year­old ence as to his brothers: “You are very clev­
“woolly marsh” does not sound like New daughter, and Justine’s boyfriend Kurt er. You are fond of money, you are far too
Mexico. M invites L, a painter and a out of the second place and back into the fond of female charms, and you mind most
friend of a friend, to stay at her “second main house with her. of all about living in undisturbed comfort.”
place”, a cottage M and Tony have built The three couples circle each other His eyes glistening, Alyosha gets the
on their land. uneasily. Individuals form surprising last word. “Everyone is guilty,” he pro­
“Second place” also sums up how M alliances; Kurt warns M that L “says he claims, in a rare interpolation by Mr Dodin.
feels about her own life: “it had been a intends to destroy you”. The dread that is
I am more guilty than all. I want to burn this
near miss, requiring just as much effort evoked forms the basis of a plot, a feature
city. I will set it ablaze and watch. No: I will
as victory but with that victory always that was missing from the author’s set it ablaze and burn with it, because I am
and forever somehow denied me.” Why much­praised but dreamlike “Outline” this city.
she feels this way is never exactly eluci­ trilogy of autofictional novels. Her prose,
dated, but L’s presence seems set to help. though, is again as spare as bone. M Through the alchemy of Mr Dodin’s
Tellingly, M saw his paintings just before envies the “aura of male freedom” in L’s craft, the bleakness is offset by the vitality
her demonic visitation on the train. work—and in delineating these frustra­ of the performance, which culminates in a
The power games begin when L ac­ tions so piercingly, Ms Cusk’s allusive dance that sweeps up the other characters
cepts M’s invitation, only to change his and elusive story makes its own un­ and carries them offstage. Left alone,
mind; when at last he does materialise he orthodox claim to freedom. Alyosha passes back through the wall. The
spotlight is turned off. n

009
 The Economist May 8th 2021 Books & arts 73

Renaissance art tionally recognised artist, seizing on the Pandemics and other disasters
new technologies of woodcuts and print­
A world of ing to market his sizeable body of With a whimper
work—100 paintings, 300 prints and over
wonders 1,000 drawings. He mechanised his genius.
Mr Hoare’s portrait glitters with arrest­
ing details. He recounts a visit Dürer made
to the Archduchess Margaret of Austria to
sue for her patronage. He was deterred by
Albert and the Whale. By Philip Hoare. her retinue, which included a greyhound, a Doom. By Niall Ferguson. Penguin; 496
Pegasus Books; 304 pages; $28.95. Fourth green parrot and a beady­eyed marmoset. pages; $30. Allen Lane; £25
Estate; £16.99 Her habit of displaying the embalmed

M arvels were commonplace in Al­

brecht Dürer’s world. As Philip Hoare
heart of her late husband, a Spanish prince,
as a charm may also have put him off.
“Dürer was living on the edge of new
A book about “Doom” that in its first
chapter quotes from “Dad’s Army”, “Be­
yond the Fringe” and Monty Python, all
writes in his captivating study of the Ger­ revelations, a world shifting nervously in classics of British comedy, lifts a reviewer’s
man artist, the potentates of early 16th­ space,” Mr Hoare writes. In 1493 Christo­ spirit. But although “The Politics of Catas­
century Europe traded wonders like play­ pher Columbus returned from the New trophe”, as Niall Ferguson’s latest work is
ing cards. Erik Walkendorf, an archbishop World; 50 years later Copernicus published subtitled, takes off with the pacey prose,
in Norway, presented Pope Leo X with “the his heliocentric theory of the cosmos. Yet grand historical sweep and fine detail for
head of a walrus, salted in a barrel like a death and disease were incessant. Dürer which the author is renowned, it does not
dead admiral”. Meanwhile, a Portuguese saw the sky shot through with blood­red live up to its early promise. In a big­idea
ambassador sent a rhino from India to his streaks, “auguries of the plague”. His book, which this aims to be, those scholar­
king in Lisbon, who tired of his pet and woodcuts of the end times were bestsell­ ly and stylistic virtues need to serve a strik­
passed it on to the pope. En route to Rome, ers. Apocalypse crackled in the air. ing argument. That, sadly, is lacking.
the ship sank in the Ligurian Sea; shackled In his previous writing, on subjects in­ Its central contention is that “all disas­
on deck, the animal went down with it. cluding “Moby Dick”, Mr Hoare pioneered a ters are at some level man­made political
Dürer probably never saw either crea­ hybrid style that merged memoir, biogra­ disasters, even if they originate with new
ture. But his luminous sketches of them phy and criticism. In “Albert and the pathogens”. A society’s character, in other
are among the works Mr Hoare considers Whale” he pushes this technique further words—its resilience, fragility and ability
in “Albert and the Whale”. More slippery than ever. His readings of Dürer’s work to manage the fallout of catastrophe—de­
than a straight biography, the book instead grow woozy with enthusiasm, dissolving termines the effect on it of even the most
swoops cormorant­like into Dürer’s life into a kind of modernist poetry. Readers apparently natural disasters, such as vol­
and times. Above all, Mr Hoare is interest­ who prefer their art history to have both canic eruptions, earthquakes and plagues.
ed in the afterlives of Dürer’s art in the five feet on the ground might be unmoored; This is the subject of the moment. Many
centuries since his death. It enraptured others will be intoxicated. factors shape the way a country copes with
William Blake, Herman Melville and Oscar Dürer died in 1528, aged 56. Eight years covid­19; some have yet to be identified.
Wilde and inspired Thomas Mann’s novel earlier he travelled to the fen country of But its varying impact at least partly re­
“Doctor Faustus”. Zeeland in search of a stranded whale. The flects societies’ different responses—and
He was born in Nuremberg in 1471. His animal vanished before he arrived. Instead their underlying strengths and weakness­
Europe, explains Mr Hoare, was both rec­ he caught “a strange illness”, possibly ma­ es. The world has, in effect, been set the
ognisable and deeply alien. It was “a place laria, which would shorten his life. Still, same exam. Some places (Taiwan) have
of taxes and printing presses”, but an or­ his journey to that haunting landscape passed with flying colours, some (India)
dinary person could expect to see fewer fired his art. “Zeeland is wonderful to see have failed dismally and most (America,
human­made images in a lifetime than to­ because of the water,” he wrote. “The great Europe) could have done better.
day’s internet mavens encounter in a mi­ ships sail about as if on the fields.” Even But the set of disasters under consider­
nute. Dürer was perhaps its first interna­ then, Dürer saw marvels. n ation is key. If it is drawn narrowly enough
to include only those that seem natural,
such as pandemics, Mr Ferguson’s observa­
tion is interesting but not original. Amar­
tya Sen, a Nobel­prizewinning economist,
made it in 1981 in “Poverty and Famines: An
Essay on Entitlement and Deprivation”; his
perception that famine is caused not by
crop failure but by politics made his name.
If the set takes in the Titanic, the Challenger
space shuttle, the war in Syria and a possi­
ble conflict with China, and if “politics” in­
cludes the way people and organisations
work together—which is how Mr Ferguson
defines both concepts—his main conten­
tion becomes a statement of the obvious.
When bad things happen to humanity, hu­
manity is largely to blame.
Mr Ferguson offers a wealth of deep re­
search, some of it gripping—such as Thu­
cydides’s account of the unravelling of an­
Pictured in his mind’s eye cient Athenian society after a plague, the

009
 74 Books & arts The Economist May 8th 2021

reasons for the lifeboat shortage on the There is also a problem of timing. About writes, “rose to the challenge posed by co­
Titanic and the views of Richard Feynman, a quarter of the book is about covid­19, vid­19.” That claim is less convincing now.
a renowned physicist, on the organisation­ which is presumably the reason why it was From within a somewhat misconceived
al causes of the Challenger disaster. But a written. Perhaps Mr Ferguson wanted to book, a better one is trying to get out. Mr
book that ranges so widely needs a strong get in before the competition, but he Ferguson’s chapter on the growing conflict
thread to hold it together. Here you may would have done better to wait. His ac­ between the West and China—“cold war II”,
find yourself turning to the long chapter count of the pandemic is a summary of the as he calls it—is forceful, coherent and an­
descriptions at the start to see why you are story up to last autumn; six months on, his gry. He dismisses the idea of “co­opetition”
reading about the Battle of the Somme or perspective at times feels mistaken. He and believes that the best way of avoiding a
the decline of the Ming dynasty. Whistle­ roundly condemns the American and Brit­ real war is for Western countries to unite
stop tours of world history succeed if the ish governments, praising not just the east and confront Beijing. His prose is best
itinerary plots an arresting case; “Doom” Asians’ management of the disease but al­ when he is roused. He should write a book
supplies the tour, but the reader is left so the benefits of European transnational on China soon; it may prove more compel­
wondering what the point of it is. co­operation. “European institutions”, he ling than this one. n

Johnson Tongue­twisters

Some languages are harder to learn than others—but not for the obvious reasons

W hen considering which foreign

languages to study, some people
shy away from those that use a different
matters more confusing, are slightly
blueish in Japan). As a result, ao is rather
tricky to wield.
divided into verbs that signify hanging,
laying something flat and placing some­
thing tall and thin. “Go” in Russian is a
alphabet. Those random­looking squig­ Life becomes tougher still when other nightmare, with a suite of verbs dis­
gles seem to symbolise the impenetrabil­ languages make distinctions that yours tinguishing walking and travelling by
ity of the language, the difficulty of the ignores. Russian splits blue into light vehicle, one­way and round trips, single
task ahead. (goluboi) and dark (sinii); foreigners can be and repeated journeys, and other nice­
So it can be surprising to hear devo­ baffled by what to call, say, a mid­blue pair ties. You can specify all these things in
tees of Russian say the alphabet is the of jeans. Plenty of other “basic” English English if you want to; the difference is
easiest part of the job. The Cyrillic script, words are similarly broken down in their that in Russian, you must.
like the Roman one, has its origins in the foreign corollaries. “Wall” and “corner” Sometimes verb systems force choic­
Greek alphabet. As a result, some letters seem like simple concepts, until you learn es on speakers not only for individual
look the same and are used near identi­ languages that sensibly distinguish be­ verbs, but for all of them. Many English­
cally. Others look the same but have tween a city’s walls and a bedroom’s (Ger­ speakers are familiar with languages,
different pronunciations, like the p in man Mauer versus Wand), interior corners such as French and Italian, which have
Cyrillic, which stands for an r­sound. For and street corners (Spanish rincón and two different past tenses, for completed
Russian, that cuts the task down to only esquina), and so on. actions and for habitual or continued
about 20 entirely new characters. These These problems are tractable on their ones. But verb systems get much more
can comfortably be learned in a week, own; you don’t often have to refer to a exotic than that.
and soon mastered to the point that they corner in casual conversation. But when “Evidential” languages require a verb
present little trouble. An alphabet, in other languages make structural dis­ ending that shows how the speaker
other words, is just an alphabet. A few tinctions missing from your native ton­ knows that the statement made is true.
tricks aside (such as the occasional omis­ gue—often in the operation of verbs—the Turkish is one of them; others, such as a
sion of vowels), other versions do what mental effort seems never­ending. English cluster in the Amazon, have particularly
the Roman one does: represent sounds. has verbs­of­all­work that seem straight­ complex—and obligatory—evidentiality
Foreign languages really become hard forward enough until you try to translate rules. Many languages mark subjects and
when they have features that do not them. In languages like German, “put” is direct objects of sentences in distinct
appear in your own—things you never ways. But in Basque, subjects of intransi­
imagined you would have to learn. tive verbs (those that take no direct ob­
Which is another way of saying that ject) look like direct objects themselves,
languages slice up the messy reality of while subjects of transitive verbs get a
experience in strikingly different ways. special form. If Martin catches sight of
This is easily illustrated with concrete Diego, Basques say the equivalent of
vocabulary. Sometimes the meanings of “Martinek sees Diego.”
foreign words and their English equiv­ In the end, the “hard” languages to
alents overlap but don’t match exactly. learn are not those that do what your
Danish, for instance, does not have a own language does in a new way. They
word for “wood”; it just uses “tree” (trae). are the ones that make you constantly
Or consider colours, which lie on a spec­ pay attention to distinctions in the world
trum that different languages segment that yours blithely passes over. It is a bit
differently. In Japanese, ao traditionally like a personal trainer putting you
refers to both green and blue. Some green through entirely new exercises. You
items are covered by a different word, might have thought yourself fit before,
midori, but ao applies to some vegetables but the next day you will wake up sore in
and green traffic lights (which, to make muscles you never knew you had.

009
 Appointments Tenders 75

INTERNATIONAL TRIBUNAL FOR THE LAW OF THE SEA

TRIBUNAL INTERNATIONAL DU DROIT DE LA MER THE NATIONAL TREASURY
AND PLANNING
REPUBLIC OF KENYA

INTERNATIONAL EXPRESSION OF INTEREST (EOI)

The International Tribunal for the Law of the Sea (ITLOS), an international PROVISION OF LIABILITY MANAGEMENT OPERATIONS ADVISORY SERVICES
court with its seat in Hamburg, Germany, has the following vacancies: TENDER NO. TNT/EOI/002/2020-2021
The Government of the Republic of Kenya has in the past conducted liability
Senior Translator/Reviser (French into English or English into French) - management operations on its local currency debt aimed at improving the
Head of Linguistic Services (P-5) debt maturity profile and intends to extend the same to a number of external
syndicated credit facilities.
Legal Officer (P-3)
The Government through the National Treasury seeks to appoint a Liability
For qualifications and experience required, as well as further details, Management Operations Advisory Firm to advise on liability management
please see the vacancy announcements on the Tribunal’s website operations in a number of external syndicated credit facilities.
(www.itlos.org). The proposed assignment is meant to provide liability management advisory services
to the Government of Kenya, to conduct liability management operations on some
external syndicated commercial loans to improve the debt sustainability profile.
Debts held in form of international sovereign bonds are excluded from this operation.
Scope of the services to be provided:
This shall inter-alia include the following workstreams:
1. Detailed review of the terms and conditions of the underlying loans or
To advertise within the classified section, contact: credit agreements for the selected external syndicated debts identified for
liability management operations;
UK/Europe North America 2. Detailed analysis of the costs and risks in each of the selected external
Agne Zurauskaite Richard Dexter syndicated loan contracts;
Tel: +44 20 7576 8152 Tel: +1 212 554 0662 3. Recommend a menu of liability management operations to be undertaken
agnezurauskaite@economist.com richarddexter@economist.com to improve public debt sustainability profile; and
4. Provide advisory support in the execution of the remedial actions to achieve
the objective of the liability management operations.
Asia Middle East & Africa
The National Treasury now invites highly reputable firms with at least five years
Connie Tsui Philip Wrigley experience in the provision of sovereign debt advisory services in low income
Tel: +852 2585 3211 Tel: +44 20 7576 8091 and emerging economies to submit Expression of Interest to provide the services.
connietsui@economist.com philipwrigley@economist.com The Expression of Interest will be evaluated to shortlist sovereign debt advisory
firms with demonstrable technical capabilities and relevant experience to be
invited for a further bidding process (Request for Proposals – RFP).

Courses To avoid conflict of interest, the Liability Management Operations Advisory Firm
SHOULD NOT be a holder of Government of Kenya’s syndicated debts or are
currently acting on behalf of syndicated lenders to the Government of Kenya,
either directly or indirectly (through affiliates and or subsidiaries).
Interested firms are requested to submit information indicating their: -
1. Company profile including Certificate of Incorporation / Registration and
Power of Attorney;
2. Professional experience in the provision of liability management advisory
services in low income and emerging economies;
3. Demonstrable track record in successfully negotiating credit terms with
arranged credit providers; and
4. Professional multi-skilled team with knowledge in liability management operations.
Requests for further information or clarifications by any interested eligible
liability management advisory firms should be addressed to: -
The Principal Secretary. The National Treasury,
Republic of Kenya Treasury Building
Harambee Avenue,
6th Floor, Room 619
P.O. Box 30007 - 00100, Nairobi
Tel: +254-20-2252299
Email: procurement@treasury.go.ke
Completed Expression of Interest documents enclosed in a plain sealed envelope
clearly marked “EOI for Liability Management Operations Advisory Services”
shall be addressed to: -
The Principal Secretary. The National Treasury,
Republic of Kenya Treasury Building
Harambee Avenue,
6th Floor, Room 619
P.O. Box 30007 - 00100, Nairobi
Tel: +254-20-2252299
Email: procurement@treasury.go.ke
and be deposited in the tender box provided at the Treasury Building, 6th Floor,
Harambee Avenue, Nairobi, so as to be received on or before Monday 24th May,
2021 at 11.00 a.m. Kenyan Time.
All Bid Documents must be sequentially serialized / paginated.
The Expression of Interest will be opened immediately thereafter in the presence
of the tenderers or their representatives who choose to attend the opening at
The National Treasury, Treasury Building, 6th Floor, Boardroom, Room No. 603 on
Monday 24th May, 2021 at 11.00 a.m. Kenyan Time.
HEAD, SUPPLY CHAIN MANAGEMENT SERVICES
FOR: PRINCIPAL SECRETARY/NATIONAL TREASURY

009
 76
Economic & financial indicators The Economist May 8th 2021

Economic data

Gross domestic product Consumer prices Unemployment Current-account Budget Interest rates Currency units
% change on year ago % change on year ago rate balance balance 10-yr gov't bonds change on per $ % change
latest quarter* 2021† latest 2021† % % of GDP, 2021† % of GDP, 2021† latest,% year ago, bp May 5th on year ago
United States 0.4 Q1 6.4 5.5 2.6 Mar 2.1 6.0 Mar -2.7 -13.5 1.6 93.0 -
China 18.3 Q1 2.4 8.5 0.4 Mar 1.6 5.3 Mar‡§ 2.7 -4.7 3.0 §§ 122 6.47 9.0
Japan -1.4 Q4 11.7 2.7 -0.1 Mar 0.2 2.6 Mar 3.2 -9.0 nil -8.0 109 -2.4
Britain -7.3 Q4 5.2 5.1 0.7 Mar 1.5 4.9 Jan†† -4.2 -12.3 0.9 58.0 0.72 11.1
Canada -3.2 Q4 9.6 4.8 2.2 Mar 2.1 7.5 Mar -2.0 -9.2 1.5 95.0 1.23 14.6
Euro area -1.8 Q1 -2.5 4.1 1.6 Apr 1.3 8.1 Mar 3.1 -6.2 -0.2 34.0 0.83 10.8
Austria -5.7 Q4 -5.6 3.8 1.9 Apr 1.7 5.6 Mar 3.0 -6.1 nil 12.0 0.83 10.8
Belgium -1.0 Q1 2.4 3.8 1.2 Apr 1.0 5.8 Mar nil -7.0 0.1 8.0 0.83 10.8
France 1.5 Q1 1.8 5.4 1.3 Apr 1.3 7.9 Mar -1.8 -9.0 0.1 26.0 0.83 10.8
Germany -3.0 Q1 -6.6 3.5 2.0 Apr 1.9 4.5 Mar 6.8 -3.6 -0.2 34.0 0.83 10.8
Greece -5.9 Q4 11.1 2.5 -1.6 Mar 0.1 15.8 Dec -5.8 -5.7 1.0 -123 0.83 1
Italy -1.4 Q1 -1.6 3.4 1.1 Apr 0.7 10.1 Mar 3.0 -10.5 0.8 -104 0.83 1
Netherlands -2.8 Q4 -0.5 3.1 1.9 Mar 1.9 3.5 Mar 9.0 -4.2 -0.3 9.0 0.83 1
Spain -4.3 Q1 -2.1 5.8 2.2 Apr 0.8 15.3 Mar 1.5 -8.7 0.5 -33.0 0.83 1
Czech Republic -4.8 Q4 -1.2 3.8 2.3 Mar 2.2 3.4 Mar‡ 1.7 -5.5 1.8 59.0 21.5 1
Denmark -1.4 Q4 2.7 3.0 1.0 Mar 0.7 4.5 Mar 7.4 -1.3 0.1 38.0 6.19 1
Norway -0.6 Q4 2.6 2.6 3.1 Mar 1.6 5.0 Nov‡‡ 2.4 -1.7 1.4 86.0 8.36 22.9
Poland -2.7 Q4 -2.0 4.0 4.3 Apr 2.4 6.4 Mar§ 2.1 -4.9 1.7 16.0 3.82 9.4
Russia -1.8 Q4 na 2.7 5.8 Mar 4.6 5.4 Mar§ 4.0 -1.7 7.2 103 74.8 -1.1
Sweden -0.8 Q1 4.5 2.4 1.7 Mar 1.4 10.0 Mar§ 4.0 -2.3 0.4 50.0 8.49 15.8
Switzerland -1.6 Q4 1.3 2.6 0.3 Apr 0.3 3.3 Mar 7.0 -2.3 -0.2 29.0 0.91 6
Turkey 5.9 Q4 na 3.9 17.1 Apr 11.9 14.1 Feb§ -2.3 -3.1 17.5 589 8.33 9
Australia -1.1 Q4 13.1 3.1 1.1 Q1 2.0 5.6 Mar 2.2 -7.6 1.7 83.0 1.29 2
Hong Kong -3.0 Q4 0.7 3.5 0.5 Mar 1.8 6.8 Mar‡‡ 3.7 -3.8 1.2 57.0 7.77 3
India 0.4 Q4 42.7 10.4 5.5 Mar 5.2 8.0 Apr -1.0 -7.0 6.0 -9.0 73.9 3
Indonesia -0.7 Q1 na 3.3 1.4 Apr 2.8 6.3 Q1§ -0.3 -6.4 6.4 -161 14,435 5
Malaysia -3.4 Q4 na 4.4 1.7 Mar 2.4 4.8 Feb§ 3.5 -6.0 3.1 29.0 4.12 4.6
Pakistan 0.5 2020** na 1.7 11.1 Apr 8.8 5.8 2018 -1.9 -6.9 9.8 ††† 175 153 4.4
Philippines -8.3 Q4 24.4 6.6 4.5 Apr 4.0 8.7 Q1§ -0.9 -7.4 4.1 77.0 48.0 5.2
Singapore 0.2 Q1 8.3 4.8 1.3 Mar 1.8 2.9 Q1 16.5 -4.1 1.6 66.0 1.34 6.0
South Korea 1.7 Q1 6.6 3.2 2.3 Apr 1.5 4.3 Mar§ 4.3 -4.7 2.1 63.0 1,123 9.5
Taiwan 8.2 Q1 12.9 4.5 1.3 Mar 1.6 3.7 Mar 15.1 -0.5 0.4 -8.0 27.9 6.7
Thailand -4.2 Q4 5.4 3.3 3.4 Apr 0.8 1.5 Dec§ 4.0 -6.0 1.6 62.0 31.1 4.2
Argentina -4.3 Q4 19.4 6.2 42.6 Mar‡ 45.9 11.0 Q4§ 2.4 -6.0 na na 93.8 -28.5
Brazil -1.1 Q4 13.3 3.2 6.1 Mar 6.7 14.4 Feb§‡‡ 0.5 -7.9 9.3 156 5.39 3.1
Chile nil Q4 30.1 6.0 2.9 Mar 3.5 10.4 Mar§‡‡ -0.2 -6.9 3.8 109 703 18.6
Colombia -3.5 Q4 26.5 4.8 1.9 Apr 2.6 14.2 Mar§ -3.3 -8.9 6.9 47.0 3,859 1.7
Mexico -3.8 Q1 1.6 5.1 4.7 Mar 3.8 4.4 Mar 2.4 -2.8 6.6 20.0 20.2 18.0
Peru -1.7 Q4 37.9 8.0 2.4 Apr 3.2 13.9 Mar§ -0.7 -7.3 5.3 118 3.83 -11.5
Egypt 2.0 Q4 na 2.9 4.4 Mar 5.7 7.2 Q4§ -3.3 -8.1 na na 15.7 0.5
Israel -1.5 Q4 6.5 4.0 0.2 Mar 1.3 5.4 Mar 3.4 -8.8 1.1 23.0 3.27 7.7
Saudi Arabia -4.1 2020 na 2.9 5.0 Mar 2.4 7.4 Q4 2.8 -3.2 na na 3.75 0.3
South Africa -4.1 Q4 6.2 2.0 3.2 Mar 3.7 32.5 Q4§ -1.6 -9.2 9.1 -62.0 14.4 27.9
Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving
average. §§5-year yield. †††Dollar-denominated bonds.

Markets Commodities
% change on: % change on:
Index one Dec 31st index one Dec 31st
The Economist commodity-price index % change on
In local currency May 5th week 2020 May 5th week 2020 2015=100 Apr 27th May 4th* month year
United States S&P 500 4,167.6 -0.4 11.0 Pakistan KSE 44,943.6 -0.3 2.7 Dollar Index
United States NAScomp 13,582.4 -3.3 5.4 Singapore STI 3,153.6 -2.0 10.9 All Items 185.0 184.9 12.4 80.5
China Shanghai Comp 3,446.9 -0.3 -0.8 South Korea KOSPI 3,147.4 -1.1 9.5 Food 139.9 141.2 12.3 50.3
China Shenzhen Comp 2,298.9 -0.1 -1.3 Taiwan TWI 16,843.4 -4.1 14.3 Industrials
Japan Nikkei 225 28,812.6 -0.8 5.0 Thailand SET 1,549.2 -1.7 6.9 All 227.1 225.6 12.4 104.5
Japan Topix 1,898.2 -0.6 5.2 Argentina MERV 49,152.3 -1.8 -4.0 Non-food agriculturals 173.9 179.6 18.5 110.0
Britain FTSE 100 7,039.3 1.1 9.0 Brazil BVSP 119,564.4 -1.2 0.5 Metals 242.9 239.3 11.2 103.3
Canada S&P TSX 19,310.7 -0.2 10.8 Mexico IPC 48,399.8 -0.2 9.8
Sterling Index
Euro area EURO STOXX 50 4,002.8 -0.3 12.7 Egypt EGX 30 10,512.8 0.4 -3.1
All items 202.9 203.3 12.2 61.9
France CAC 40 6,339.5 0.5 14.2 Israel TA-125 1,729.2 1.4 10.3
Germany DAX* 15,170.8 -0.8 10.6 Saudi Arabia Tadawul 10,252.2 -2.6 18.0 Euro Index
Italy FTSE/MIB 24,463.9 nil 10.0 South Africa JSE AS 67,346.2 -0.6 13.4 All items 169.8 170.4 10.6 62.6
Netherlands AEX 714.1 0.3 14.3 World, dev'd MSCI 2,932.8 -0.6 9.0 Gold
Spain IBEX 35 8,967.8 1.9 11.1 Emerging markets MSCI 1,333.0 -2.3 3.2 $ per oz 1,779.8 1,777.6 1.9 4.6
Poland WIG 60,936.8 0.8 6.9
Brent
Russia RTS, $ terms 1,535.7 1.8 10.7
$ per barrel 66.6 69.0 9.8 122.2
Switzerland SMI 11,108.9 nil 3.8 US corporate bonds, spread over Treasuries
Turkey BIST 1,420.0 2.5 -3.8 Sources: Bloomberg; CME Group; Cotlook; Refinitiv Datastream;
Dec 31st
Fastmarkets; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool
Australia All Ord. 7,344.2 0.3 7.2 Basis points latest 2020
Services; Thompson Lloyd & Ewart; Urner Barry; WSJ. *Provisional.
Hong Kong Hang Seng 28,418.0 -2.2 4.4 Investment grade 120 136
India BSE 48,677.6 -2.1 1.9 High-yield 358 429
Indonesia IDX 5,975.9 nil -0.1 Sources: Refinitiv Datastream; Standard & Poor's Global Fixed Income For more countries and additional data, visit
Malaysia KLSE 1,575.7 -2.0 -3.2 Research. *Total return index. Economist.com/indicators

009
 Graphic detail Pollution and poverty The Economist May 8th 2021 77

→ Modern inequality in English cities traces the contours of 19th-century smog plumes

Air pollution* N England, average distribution among 70 cities N Share of low-skilled

1880-1900 workers, 1881
Min Median Max

City centre City centre

W E W E

In Victorian England, air pollution

and low-skilled workers both
S clustered in cities’ eastern halves S

Correlation between air pollution* and share of low-skilled workers Air pollution* in 1880-1900 v share of low-skilled workers in listed year
Areas near chimneys†, by angle relative to prevailing wind Districts‡ in English cities, standard deviations above average
0.10 0.50
2011
→ Areas that were heavily 1971
0.05 0.25
polluted around 1890 remained
1817 95% confidence working-class a century later 1881

0 0
1817

↑ By 1881 working-class labourers -0.05 -0.25

clustered downwind of chimneys. There
1881
was no such pattern before coal power
-0.10 -0.50
-180 -150 -120 -90 -60 -30 0 30 60 90 120 150 180 -1.5 -1.0 -0.5 0 0.5 1.0 1.5
Upwind Downwind Upwind Air pollution*
*SO2, 1880-1900, estimate from model †Locations of chimneys on maps in 1880-1900 ‡Lower layer super output areas Source: “East-side
story: historical pollution and persistent neighbourhood sorting”, by S. Heblich, A. Trew and Y. Zylberberg, 2021, Journal of Political Economy

Why east has least too. Instead, the east is poorer even in Bris­
tol and Manchester, where rivers flow
mospheric­dispersion models to estimate
where each chimney’s exhaust would wind
west. A newly published paper, by Stephan up, based on local topography.
Heblich, Alex Trew and Yanos Zylberberg, In 1817 low­skilled workers were evenly
argues instead that wind was the culprit, spread around these rings. But by 1881 they
by blowing air pollution east and causing clustered in the direction of the prevailing
the rich to flee in the opposite direction. wind, which carried noxious fumes. This
The legacy of Victorian-era pollution
To solve a 19th­century mystery, their implies either that factory staff moved into
still shapes English cities
study used 21st­century wizardry. First, it newly polluted areas, or that richer people

T he east end of London was long an

epitome of industrial squalor. Today its
smokestacks are gone, but it remains the
applied an image­recognition algorithm to
maps of 70 English cities in 1880­1900, pin­
pointing the sites of 5,000 industrial chim­
fled them. And because English winds tend
to blow from the south­west, these areas
were mostly north­east of the chimneys.
city’s poorest area. This lopsided distribu­ neys. Next, using census and baptism data, This pattern is remarkably durable.
tion of poverty is typical in England, where it estimated labourers’ average skill levels Among otherwise similar regions of a city
the western halves of metropolitan areas over time in 5,500 local areas. By 1881 chim­ like Manchester, the share of blue­collar
tend to be richer than the eastern ones. neys were often ringed by working­class workers in 2011 was 16 percentage points
What accounts for this pattern? In Lon­ homes. Before coal power, the low­skilled higher in areas in the top decile of pollu­
don the most intuitive reason is the River share of those areas was unremarkable. tion in 1880­1900 than in those in the bot­
Thames. Historically, it carried wastewater But which came first, the factories or tom decile. House prices were 40% lower.
from west to east, and its banks down­ the proletariat? To find an answer, the au­ England cut back on coal decades ago, but
stream from the city centre were lined with thors drew concentric circles around each Victorian smog casts a long shadow. n
docks, which might have drawn low­earn­ smokestack, and measured the share of
ing workers to the area. But if the river were working­class labourers in different parts Correction Our story on military spending last
the cause, fluvial currents would probably of each ring, which all had similar travel week (“Buck for the bang”) said that entry-level pay
point towards rough parts of other cities times to a given factory. They also used at­ in China’s army was $10 per month. It is $108. Sorry.

009
 78
Obituary Michael Collins The Economist May 8th 2021

So when the press called him the loneliest man in history, or at

least since Adam, 65 miles above his comrades, 250,000 miles
from home, that was ridiculous. Occasionally forgotten, perhaps.
In any case he had already had his own extra­vehicular adven­
ture on the Gemini 10 mission, going out to retrieve a meteorite­
collector from a dead Agena rocket, gliding across the night sky
with perfect and stately grace, like a god. It didn’t matter that, after
Apollo 11, people struggled to remember his name. To be third man
then was fine. Together they had done what President John Kenne­
dy had told them in 1961: put a man on the Moon by the end of the
decade, and (implied) before those Russians did.
He was at Edwards Air Force Base in California when that chal­
lenge came down, testing fighter planes over the Mojave desert.
Though some at Edwards scorned the thought of being locked in a
can and fired around the world like ammunition, he burned to get
into the astronaut programme. He dreamed of circling Earth in 90
neat minutes, like John Glenn; he hungered to explore the realm
where his childhood hero Buck Rogers had roared around in his
space rocket, tackling the Tiger Men from Mars.
All he needed was a lot of luck. By his own lights he was noth­
ing special, though ok if you were looking for a handball game. As
a student he was easily bored, especially when he had to process
reams of flight data by hand into reports, or when, during astro­
naut training, he had to endure mind­numbing lectures on geo­
logy. Mathematical calculations destroyed the wonder of things;
he would rather read “Paradise Lost”. By the age of 35 he was ready
for the Gemini launch, but just as well it came no sooner.
The third man He would now pit his little pink body against the hard vacuum
of space, with nothing between them but a thin shell of metal or a
pressurised suit. The whole business of going there, each
manoeuvre leading to the next and each needing to be perfect, was
like a long fragile daisy chain looping from Earth and back. If one
link failed, all the rest was useless. Rather than be a weak point, as
he worried he might be, he was now rigorously precise. Before
Michael Collins, astronaut, died on April 28th, aged 90
Gemini 10 he filled a notebook with 138 potential problems, cross­

T he moon that filled the window of the spacecraft Columbia was

not one Michael Collins had ever seen before. It was absolutely
three­dimensional, its belly bulging out towards him. Cascading
ing each off as it was solved. Alone on Columbia during the Moon
mission, he kept a packet of 18 different rescue plans tied round
his neck, some so outlandish that they had never practised them.
sunlight formed a halo round it. The lighter parts were a lot lighter His mission first commandment was simple: Thou shalt not
than usual, the jagged mountains darker. It was electrifying. Then screw up. Gemini 10 had been a practice run for Apollo, a local
the feeling passed. “Hello Moon!” he quipped. “How’s the old thing, but now the world’s eyes were on the Moon and on them.
backside?” The commemorative stamps were already printed, the medals
This was the closest he had come, as the Apollo 11 crew on July struck; he had sketched the patch­image himself, an American
19th 1969 scouted out their best landing place. But he knew all bald eagle with olive branches in its claws. Columbia carried a
about the Moon: dry, lifeless, rough as a corncob. Sometimes it plaque to be left on the Moon, “We came in peace for all mankind”.
looked like a sun­seared peach pit, sometimes like smallpox. The weight of expectation could not have been heavier.
What it never looked was interesting. He would certainly much Yet it came from a planet that seemed to weigh nothing at all. If
rather have flown off to Mars. he stretched out his arm to the window of Columbia, Earth was co­
It was therefore no hardship, when his colleagues Neil Arm­ vered by his thumbnail. It floated in a black void, blue with seas,
strong and Buzz Aldrin took the lunar module Eagle down to the white with clouds, a tiny gem sparkling and shining. The word
surface and clumped about on it, for him to stay for 27 hours in or­ that kept surprising him was “fragile”. He had known Earth all his
bit in Columbia. Someone had to get them home. Besides, he loved life as solid, heavy, terrifyingly hard as he fell towards it once
Columbia, finest of ships, commodious and a friend. It pained him when his f-86 was on fire. Now he wanted to take care of it. He
to think of Neil and Buzz trailing their grimy moon­goo into it. On wished its bickering politicians could see it from that distance.
his previous spaceflight, the Gemini 10 mission with John Young What would their arguments matter then?
in 1966 to practise manoeuvering in Earth orbit, the two of them Ever since some gruesome dental work in childhood, he had
had squashed into a cabin the size of the front seat of a Volks­ been able to detach his mind from his body when he needed to. At
wagen. By contrast Columbia almost reminded him, if you took the the dentist’s, he hovered near the ceiling. As a test pilot, he found
centre couch out, of Washington National Cathedral. When he lat­ secret spaces in cumulus clouds. In later life, if he needed solace,
er became director of the new National Air and Space Museum, he would relive what he had seen from Columbia. That was his last
planning and completing it on time and under budget, she had a space trip; being an astronaut took him away from family too
place of honour, right by Lindbergh’s Spirit of St Louis. much. He liked to recall how the Moon had looked close­to, shock­
Ensconced in Columbia he could dine in splendour on tubes of ingly spherical, and compared it with the shining dinner­plate he
his favourite cream­of­chicken soup, drink fairly hot coffee, listen saw from his paddleboat when he was out night­fishing. He did
to music and crank up the thermostat to 76 degrees. For 48 min­ not look often, though; been there, done that. It was the beauty of
utes in each of 14 orbits, as he passed the Moon’s meteor­battered Earth he most remembered, and now campaigned to save. That
backside, it was a joy to get Mission Control to shut up for a while. first. Then on to Mars. n

009
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