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\nSEARCHRESEARCHTOOLSEconomist.comChoosearesearchtool...advancedsearch»SubscribeActivateRSSHelpSaturdayJanuary26th2008Welcome=requiressubscriptionMyAccount»ManagemynewslettersLOGOUT»»PRINTEDITIONPrintEditionJanuary26th2008PreviousprinteditionsSubscribeOnthecoverPanicinthemarketsisscary.Jan19th2008SubscribetotheprinteditionAmongpolicymakersitmakesJan12th2008OrbuyaWebsubscriptionforthingsworse:leaderJan5th2008fullaccessonlineDec22nd2007Dec15th2007RSSfeedsReceivethispagebyRSSfeedMoreprinteditionsandcovers»TheworldthisweekPoliticsthisweekFullcontentsSubscribeBusinessthisweekEnlargecurrentcoverKAL'scartoonPastissues/regionalcoversBusinessLeadersNEWSANALYSISTheadvertisingmarketHardsellPOLITICSTHISWEEKThemarketsIt'sroughoutthereAustralianmediaBUSINESSTHISWEEKLikelyladsNorthernRockOPINIONHockingtheRockThepharmaceuticalindustryLeadersThebitterestpillLetterstotheeditorPrivatespaceflightBlogsVirginbirthEuropeanbusinessschoolsColumnsInseadout?KalleryThailandGoodriddanceWirelessindustryWORLDAirwavesforsaleSerbia'sfutureUnitedStatesNoplaceelsetogoChinesehotelsTheAmericasAsiaRoomattheinnMiddleEast&AfricaEuropeLettersFacevalueBritainHighStreiffInternationalOnmigration,theNationalHealthService,ChineseCountryBriefingsexports,BruceForsythBriefingCitiesGuideBriefingCommercialspaceflightSPECIALREPORTSStarshipenterprise:thenextgenerationTheworld'ssilverliningBUSINESSSomewhereovertherainbowSpaceflightmedicalsManagementSuitedforspaceBusinessEducationUnitedStatesFINANCE&ECONOMICSFinance&EconomicsRaceandtheDemocratsEconomicsFocusThecooksspoilObama'sbrothBondinsurersEconomicsA-ZBuddy,couldyouspareus$15billion?ThestimuluspackageSCIENCE&TECHNOLOGYFullspeedaheadGlobalmarketsTechnologyQuarterlyAwildrideBarackObama'schurchBOOKS&ARTSHolymolyTheFederalReserveGoingitaloneStyleGuideTheRepublicansMcCainbuildsmomentumPakistan'sstockmarketPEOPLETheworld'smostdangeroushavenObituaryOnthecampaigntrailPrimarycolourDecoupling1:EmergingAsiaMARKETS&DATAAnindependentstreakHealthcarecostsWeeklyIndicatorsCurrenciesBoonorbane?Decoupling2:JapanRankingsUnabletofendforitselfBigMacIndexFredThompsonbowsoutChartGalleryLights,camera,curtainsSociétéGénéraleSocked,notgentlyDIVERSIONSRacingAllbetsmaybeoffEconomicsfocusCorrespondent’sDiaryFaultypowersLanduseinColoradoRESEARCHTOOLSWheregascomescheapScience&TechnologyAUDIOANDVIDEOLexingtonDELIVERYOPTIONSOfftheleashArtificiallifeNearlythereE-mailNewslettersAudioeditionTheAmericasMicroelectronicsMobileEditionEyeingupanewtechnologyRSSFeedsCanadaScreensaverTheautomatongoesonandonOrgantransplantsAsuccessfulmixtureCLASSIFIEDADSMexicoandNAFTATariffsandtortillasPhysiognomyandsuccessFacevalueEconomistIntelligenceUnitBrazilEconomistConferencesWolfpackTheWorldInBooks&ArtsIntelligentLifeArgentinaCFORollCallStopalltheclocksRupertMurdochEuropeanVoiceSpendsome,thenspendsomemoreEuroFinanceEconomistDiariesandAsiaDoingbusinessinChinaBusinessGiftsBythebookReprintsandPermissionsEnvironmentalprotectioninChinaDon'tdrinkthewateranddon'tbreathetheairChineseandIndiancapitalismShiftingthebalanceThailand'sdrugwarsBackontheoffensiveNewfilm:“Katyn”UnburieddeadAdvertisementMalaysiaIndianmutinyNewfictionThewindsofwarWhalingSaltyshepherdsParmigianinoattheFrickOneandonlyTourisminNepalFromtrekstosex\nObituaryAfghanistanPaddyre-enlistsBobbyFischerMiddleEast&AfricaEconomicandFinancialIndicatorsTheGazaStripBustingtheblockadeOverviewKenyaOutput,pricesandjobsNolet-upinthekillingTheEconomistcommodity-priceindexCentralAfricanRepublicBeyondafailedstateEconomicfreedomNigeriaTrade,exchangerates,budgetbalancesandinterestDemocracybycourtorderratesMarketsGoldEuropeSpainZapatero'sbearfightItaly'srockygovernmentOnitswayoutItalianarttreasuresCominghomeEasternEurope,AmericaandRussiaPipedreamsEuropeanenergyHotairFrenchreformsAttalitheHunCharlemagneTheinandoutclubBritainEconomicnervesNothingtosmileaboutPolitical-partyfundingHainwalkstheplankThepoorUndeservingBritainandEuropePush-pullNorthernIrelandTheoldorderchangethReformingthepoliceBoysinblueheadintotheredMedicalcarePayingadeadlypriceIdentitycardsDead,orjustsleeping?BagehotIntheredcornerArticlesflaggedwiththisiconareprintedonlyintheBritisheditionofTheEconomistInternationalEnvironmentanddevelopmentHowgreenistheirgrowthTheVaticanandIslamAflusteredflockofpigeonsMalnutritionThestarvelingsMilitaryhelicoptersGettingbootsoffthegroundAdvertisementClassifiedadsSponsors'featureAboutsponsorship»JobsBusiness/TendersPropertyJobsBusiness/ConsumerConsumerMultiplePositionsTenderNoticeExclusiveNYCcondoECONOMICTHEINSTITUTEOF#1CareerCOMMONMARKETforsaleADVISERPOSITIONApplyToday-WSIisINTERNATIONALOpportunity.World'sFOREASTERNANDExclusiveNewYorkPortMoresby,Papuatheworld'slargestFINANCE,INC.,topInternetFranchiseSOUTHERNAFRICACitycondoLuxuryNewGuinea-12networkofWASHINGTON,DCiscurrentlylookingtoMARCHECOMMUNTimeWarnerCenter,monthcontractwithprofessionalInternetTheInstituteofexpandtheirDE....midtownManhattan2potentialforMarketingInternatio....franchise.Becomeanbed,....extension-Com....Consultants.FullInternetConsultantTrainingandSupport.Today.ApplyHere.AboutEconomist.com|AboutTheEconomist|MediaDirectory|StaffBooks|Advertisinginfo|Careeropportunities|ContactusCopyright©TheEconomistNewspaperLimited2008.Allrightsreserved.AdvertisingInfo|Legaldisclaimer|Accessibility|Privacypolicy|Terms&Conditions|Help\nPoliticsthisweekJan24th2008FromTheEconomistprinteditionTens,orpossiblyhundreds,ofthousandsofGazanssurgedintoEgyptfromtheAPGazaStripaftermilitantsdestroyedpartsoftheborderwall.GazansrushedtobuyfoodandothersuppliesthathavebecomescarcebecauseofanIsraeliblockadeofthePalestinianterritory,aimedatstoppingrocketsbeingfiredonIsraelivillagesandtowns.SeearticleAtameetinginBerlin,foreignministersfromAmerica,Britain,France,Germany,RussiaandChinaagreedonthedraftofathirdresolutiononIranthatwillshortlybeputtotheUnitedNationsSecurityCouncil.ButarecentAmericanintelligencereportthatIranhad“halted”itsweaponsprogrammein2003enabledRussiaandChinatowaterdownnewsanctionsonIranforitsdefianceincontinuingitsuraniumenrichment.ApeacedealwassignedineasternCongobetweenthegovernmentandrebelgroups,includingonecommandedbyGeneralLaurentNkunda.Oneaidorganisationclaimsthatwarandrelatedcrisesarecosting45,000livesamonth.InZimbabwe,policetear-gassedhundredsofprotestersinHarareaftertheyheldarallyinafootballstadium.Theyweredemonstratingmainlyagainsttheparlousstateoftheeconomy;inflationisnowthoughttobeover50,000%,butthegovernmenthasstoppedcounting.ProtestscontinuedinKenyaagainstthere-electionofPresidentMwaiKibakiinDecember.Thedeathtollinwidespreadviolence,muchofitbetweenrivalethnicgroups,hasexceeded650.Thegovernmentsaiditmightsetupacommissiontoinvestigateallegedballotrigging,buttheoppositionsaidtheywerenotconsultedaboutthemove.SeearticleProdionthebrinkItaly'scentre-leftgovernmentteeteredaftertwosmallpartieswithdrewtheirsupport.Theprimeminister,RomanoProdi,facedanail-bitingvoteintheSenate,withmanyadviserscallingonhimtoresigninadvance.SeearticleTheEuropeanCommissionpresenteditsproposalsforallocatingtheEuropeanUnion'scollectiveemissionstarget,whichcutsoutputofCOby20%by2020,toindividualcountries.Monthsofargument2andnegotiationarelikelytofollowbeforethetargetstakeeffect.SeearticleTheGreekprimeminister,CostasKaramanlis,wenttoTurkey,thefirstsuchAPvisitbyaGreekleaderinalmost50years.Althoughrelationsbetweenthetwocountriesarewarmerthantheywere,bigdifferencespersistovertheAegeanand,especially,thefutureofCyprus.Withthegovernmentfacingatightsqueezeinitspublicfinances,morethan20,000(off-duty)policeofficersfromalloverBritainmarchedthroughcentralLondoninaprotestoverpay,whichpolicerepresentativessaidwasawarningnottotamperwiththeirfuturebenefits.SeearticleTheFrenchgovernmentwelcomedaplanforeconomicreformpresentedbyacommissionchairedbyJacquesAttali,onceanadvisertoFrançoisMitterrand.Observerswonderedhowmanyoftheplan's300recommendationswouldeverbeimplemented.Seearticle\nElectionprocessThePeople'sPowerPartyformedacoalitiongovernmentinThailandaftertheSupremeCourtrejectedcallsforitsdissolution.ThePPP'sleader,SamakSundaravej,seemedpoisedtobecomethenewprimeminister.ThepartysupportsThaksinShinawatra,theprimeministerdeposedinacoupin2006,whohassaidheplanstoreturnfromexileinMay.SeearticleOfficialsintheIndianstateofWestBengalsaidthatanepidemicofbirdfluwasspreading,affectingnineofthestate's19districts,and“gettingoutofhand”.Theysaidthataround2mbirdswouldhavetobeculled.PartoftheborderwithBangladeshwassealed.FiercefightingwasreportedfromtheSouthWaziristandistrictofPakistan.ThearmysaiddozensofTalibanmilitantsandseveralsoldierswerekilled.ItalsoclaimedthatBaitullahMehsud,amilitantleaderaccusedofplanninglastmonth'smurderofBenazirBhutto,hasbeenleadingattacksonarmyfortsinthearea.PuttingmoneyinyourpocketAnearlybipartisanpushinCongresstoresolvequicklydifferencesoverGeorgeBush's$150billioneconomicstimuluspackage,unveiledonJanuary18th,startedtofray,withsomeDemocratsandRepublicansraisingdoubtsabouttheplanfromthesidelines.TheWhiteHouseandcongressionalleadersremainedconfidenttheycouldgetthelegislationpassedsoon.FredThompsonpulledoutoftheRepublicanpresidentialrunningfollowingapoorshowingintheparty'sSouthCarolinaprimary,whichwaswonbyJohnMcCain.TheRepublicans'nextcontestisinFlorida,whereRudyGiulianiwillhopetomakeanimpactontherace.SeearticleTherancourintensifiedbetweenHillaryClintonandBarackObamafollowingMrsClinton'swinintheNevadacaucuses.MrObamasingledoutBillClintonforparticularcriticismoverhisprominentroleinhiswife'scampaign.SeearticleJoséPadillawasgivena17-yearprisonsentenceforsupportingterrorism.MrPadillawasinitiallyarrestedinconnectionwithanalleged“dirtybomb”plot,butthosechargesweredropped.AnAmericancitizen,hechallengedhisdetentioninamilitarybrigwithouttrialbeforehiscasewasbroughttocourt.DefenceprocurementAcommitteesetupbyStephenHarper'sgovernmentrecommendedthatCanadashouldpullits2,500troopsoutoftheircombatroleinKandaharinAfghanistanunlessNATOsends1,000reinforcementstotheareaandtheforceisbackedbymoreairpower.SeearticleMexicantroopsarrestedaleaderoftheSinaloadrugmob,followingafortnightofarmedclashesinthenorthofthecountrybetweenthearmyanddrug-traffickers.Inanelectionwithnooppositioncandidates,CubansvotedforanewNationalEPAAssembly.ItsmembersincludeFidelCastro,Cuba'sailingleader.Therehasbeenspeculationthathemaystepdownaspresidentnextmonth.BrazilsaidthatdeforestationintheAmazonreachedarecordrateinthelastfivemonthsof2007.Environmentalistsblamedhighgrainpricesfortriggeringanexpansionoffarmingandranching.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nBusinessthisweekJan24th2008FromTheEconomistprinteditionStockmarketsaroundtheworldsuccumbedtoanothertumultuousweek,fallingsteeplyinAsiaandEurope.TherewasmuchdiscussionaboutwhethertheAmericaneconomywouldenterintoadeeprecessionandwhateffectitwouldhaveontherestoftheworld.SeearticleInanefforttostaveoffthebroadeningpanic,America'sFederalReservecutitskeyinterestratebythree-quartersofapercentagepoint,to3.5%,thebiggestsinglecutinaquarterofacentury.Theunusualintervention,oneweekaheadoftheFed'sscheduledJanuarymeeting,soothednervesinAmericanmarketswhentheyreopenedafteraholiday.Butnotforlong.SeearticleHowthemightyfallTherewasalsomuchspeculationaboutabail-outofAmerica'stroubledbondinsurers.AmbacFinancialreporteda$3.3billionquarterlynetlossafteritrecorded$5.2billioninwrite-downsfromitscredit-derivativesportfolio,whichincludesassetsbackedbysubprimemortgages.OnJanuary18thFitchcutitsAAAcredit-ratingforAmbac,whichsuggeststheinsurersmaynotbereliablecounterpartiesforthestates,citiesandbanksthatdobusinesswiththem.SeearticleSociétéGénérale,France'ssecond-biggestbank,saiditwouldwritedowneuro2.05billion($3billion)inassetsstemmingfromthesubprimemarket.Italsosaidithaduncoveredamassivefraudbyasingleroguetraderthatwouldcostiteuro4.9billion.Itssharepriceplummeted.SeearticleTheshakeoutfromsubprimemarketscontinuedtoinflictpainonAmerica'sfinancialtitans.BankofAmerica'squarterlynetprofitplungedby95%comparedwithayearago,to$268m.Wachoviasawasimilarprecipitousdeclineinitsprofit,to$51m.It'stoughatthetopGeneralMotorsretainedthetitleofworld'sbiggestcarmaker,butonlyjust.TheDetroitcompanysold9.370mvehiclesin2007comparedwith9.366mforToyota.ThesalesofbothhavebeentrackedcloselyoverthepastyeartoseeifToyotawouldsnatchGM's76-year-oldcrown.ToyotahasalreadyovertakenFordasthesecond-biggestcarmakerintheUnitedStates;itisprobablyquitehappytoletsomeoneelseenjoytheaccoladeofbeingtheworld'sbiggest.AcourtinParisprolongedthetwo-yearsagaofGazdeFrance'sattempttomergewithSuez,rulingthattheutilitiescompaniesmustprovidemoreinformationtoworkerrepresentativessotheycouldreachanopinion,arequirementunderFrenchlaw.Themanagementatstate-ownedGDFhasaccusedunionsofstalling.Thelatestdevelopmentfrustratedinvestors,butthedealisstillexpectedtocloseinthecomingmonths.FollowingitslandmarkrulingonsecuritieslitigationintheStoneridgecase,whichcurtailstheabilityofdefraudedinvestorstosuethirdparties,America'sSupremeCourtdeniedanappealfromformerEnroninvestorshopingtorevivetheir$40billionclass-actionlawsuitagainstWallStreetbanksthathelpedtofinancetheirdeals.LachlanMurdochandJamesPackerwerereunited,thistimeinabidtotakeoverConsolidatedMediaHoldings,whichretainsassetsofthelateKerryPacker.BoththeprogenyofAustraliantycoons,MessrsMurdochandPackerinvestedmillionsofdollarsinOne.Telbeforeitscollapsein2001.MrMurdochstooddownfromamanagementroleatNewsCorpin2005butstillsitsontheboardofhisfather'sbusiness.Heinsiststhatthisdealis“completelymyown”.Seearticle\nVale,aBrazilianmininggiant(formerlyknownasCVRD),confirmedthatitwas“maintainingadialogue”withXstrata,anAnglo-Swissrival,butdampenedspeculationthatamergerdealwasimminent.Meanwhile,BHPBillitonindicateditwouldnotraiseitsofferforRioTinto.HerfinalbidMegWhitmansaidshewouldstepdownaschiefexecutiveofeBay,aftertenyearsinwhichtheonlineauctioneerhashelpedtotransformbusinessconductedovertheinternet.However,thecompanyalsomadesomedisastrousdecisionsunderMsWhitman'stenure,includingthesky-highpriceitpaidforSkype,andshewillretirewithinvestorsunhappyateBay'sstagnantshareprice.Baidu.com,China'smostpopularinternetsearchengine,madeitsfirstoverseasforaywhenitlaunchedaJapanese-languagewebsite.ThemoveisadirectchallengetoYahoo!andGoogle,whichdominatetheJapanesemarket.Therewasnoescapeforinvestorsfromthecommotioninworldmarketsthisweek.AfinancialcrisisalsohitSecondLife,apopularonlinevirtualworld,whichhadtoclosethedoorsonadozenbanksthatrefusedtopayouthighreturnsonavatars'deposits.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nKAL'scartoonJan24th2008FromTheEconomistprinteditionIllustrationbyKevinKallaugherCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nThemarketsIt'sroughoutthereJan24th2008FromTheEconomistprinteditionPanicinthemarketsisscary.AmongpolicymakersitonlymakesthingsworseTHEfinancialstormthatblewupinAmerica'ssubprimemortgagemarketlastyearhasbecomeahurricane.Theillwindfromrecklesspropertylendingblastedfirstthemarketinasset-backedsecurities,thenbanks'balancesheetsand,mostrecently,stockmarkets.Acrosstheglobe,morethan$5trillionhasdisappearedfromthevalueofpubliccompaniesinthefirstthreeweeksofJanuary.Manymarketsare20%ormorebelowtheirhighs,theinformaldefinitionofabearmarket.OnJanuary21stsharepricesplungedfromBraziltoBritainintheworstdayoftradingsinceSeptember11th2001.AlthoughAmerica'sexchangeswereclosedthatday,itspolicymakers'responsewasmorethancommensurate.BeforeWallStreetopenedonJanuary22ndtheFederalReserveannouncedanunscheduledratecutofthree-quartersofapercentagepoint,to3.5%,itsfastesteasinginaquarterofacentury.AdaylatertheNewYorkinsuranceregulatorandleadingbanksbeganworkonamulti-billion-dollarplantorescuethecountry'steeteringbondinsurers.Asthemarketspitchandyawthepressingquestioniswhethercentralbankersandregulatorshaveactedwithswiftprudence,orill-judgedpanic.Thereisnodoubtthatthisisafrighteningmoment.ButthenarroweconomicrationalefortheFed'semergencyrate-cutthisweekwasthin.America'sweakeconomymeansmonetarypolicycan,andshould,beloosenedconsiderably.Butthecentralbankers'nextscheduledmeetingbeginsonJanuary29th.Sincelowerinterestratestakeseveralmonthstoworkthroughtheeconomy,acceleratingratecutsbyafewdayswillnotmuchaffecttheoutcome.Yes,sharepriceshadbeenfallingsharplyacrosstheglobe,buttheslidewasorderlyandthesystemhadnotseizedup.TheFedseemstohavebeenspooked,andwantedtostopthemarkets'fall(seearticle).Thatisadangerouspathforacentralbanktotread.Itssuccesswillnowbeidentifiedwithshort-termmovementsonWallStreet.Indeed,asthestockmarketshruggedoffthelatestratecut,theFed'sauthorityalreadylookeddiminished.Asiftoprovethepoint,sharessoaredonlywhentheinsuranceregulatorappeared.BenBernanke,FedchairmanandguardianofAmerica'seconomy,movedWallStreetlessthanEricDinallo,whomnobodyhadheardof,sayinghewouldrescuesomeinsurersnobodyunderstood(seearticle).Ratherthanchasingthemarket'stail,theFedoughttobeaskingwhatthemarkets'fallreallysignals.Theansweris:unsurprisingjudgmentsthatshouldnothaveledittopanic.TheBernankeput-upon\nFormuchoflastyear,stockmarketsignoredthebadnewsfromthecreditmarkets,thankstothreeassumptions.First,thatpolicymakers,ledbytheFed,wouldavertrecessionintheUnitedStates.Second,thatevenifAmericastumbled,therestoftheworldeconomywas“decoupled”andwouldcarryongrowinghealthily.Andthird,thatthecreditmesswouldbeconfinedtoareasrelatedtosubprimemortgages.Theseassumptionswerealwaysover-optimistic.America'seconomyhasstalledasthebuildingbustdeepensandconsumerscopewiththetriplewhammyoffallinghouseprices,tightercreditanddeareroil.Thelabourmarketisweakeningatapacethathasinthepastheraldedrecession.Therestoftheworld,meanwhile,isslowing.Europe'soutlookhasdarkened.Itsbanksareembroiledinthecreditcrisis;andoneofthem,SociétéGénérale,haslost€4.9billion($7.1billion)inafraud.Japanisweak;eventurbo-chargedChinamaycool.Andthecreditcrisishascontinuedtospread.Corporatelendingandpartsofconsumercredit,suchascreditcardsandcarloans,arewobbly.Theloomingdowngrades—andpossiblebankruptcies—ofthe“monoline”insurersofsome$2.4trillionofbondsbodedworseuntilMrDinallomoved.Theywouldhavehurtstatesandmunicipalitiesthataretheirbiggestcustomers;andbanksthathadboughtinsuranceincredit-derivativetradeswouldalsohavebeenhit.Afurtherroundoflossesatthebankscouldhavebeencatastrophic.Withthesystematrisk,nowonderstockmarketsswooned.HeavyweatherNoneofthisisexactlycheerful,butitisnotdisastrous,either.Particularproblems,likethemonolineinsurers,shouldbedealtwithbyparticularremedies,notthewarmbathofmonetarypolicy.Itisearlydays,butonechoiceforMrDinallowouldbetocorraltheirworstrisksina“badbank”,leavingtherestintact—andmoretightlyregulated.Astodecoupling,althoughtherestoftheworldremainssomewhatvulnerabletoAmerica'stroubles,mostricheconomiesareinaslightlybettershapethantheUnitedStates,andmostemergingonesarebetterabletowithstandanAmericandownturnthantheywere(seearticle).Manyhaveplentyofreservesandflexibleexchangerates,makingarerunofthe1997-98crisesunlikely.Manyaregrowingnicelyonthebackofrisingdomesticdemandandregionaltradelinks.Andmanyhavestrongbudgetpositions,leavingroomforfiscallooseningtooffsetweakeningexports.Americanpolicymakersalsohavetoolstocushion—ifnotforestall—thedownturn.Lowerinterestratesmaynotstophousepricesfalling,norwilltheypreventbanksfromtighteningtheirlendingstandards.Butmonetarypolicycanstillstimulatetheeconomy,aslowerratesboostbanks'profitability,bringdownfirms'borrowingcostsandimproveindebtedconsumers'cashflow(seearticle).Equally,fiscalpolicywillbeaprop.Ofcourse,PresidentBushpromisedtoomuchwhenhesuggestedthatastimuluspackagewouldkeeptheeconomy“healthy”.ButCongressisrushingthe$150billionpackagethrough,and,evenifittakesawhiletoreachfirmsandconsumers,itwillgivetheeconomyaboost.Takentogether,thesignsfromtheworldeconomyaretroubling.Thecreditbingewillnotunwindquicklyorgently.Assetpriceswillfall.Butcentralbankersandregulatorshavethetoolstostopadownturnfrombecomingaslump,solongastheyusethemsensibly.Reactingtomarketpanicwithpanickyratecutsislikelytomakethingsworseratherthanbetter.TheFedshouldalwaysbethecalmcentreofafinancialstorm.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nNorthernRockHockingtheRockJan24th2008FromTheEconomistprinteditionAPThelatestproposalforrescuingthemortgagelenderisashamelessshamCANGordonBrown,Moses-like,havesummonedthestormthatstruckstockmarketsthisweek?Nothinglessthanathunder-and-lightningextravaganzawasneededtodistractattentionfromthemanifoldshortcomingsofhisgovernment'slatestplanforNorthernRock.Forfourmonthsministershaveditheredoverwhattodowiththebustmortgagelender,victimoftheworldwidecreditcrunchanditsownrecklessness,stumblingalongona£26billion($51billion)loanfromtheBankofEnglandanda£30billionguaranteetodepositors.Unabletofindaprivatebuyerwithaccesstoenoughcashtotakethebankoffitshands,thegovernmentrefusestodothepoliticallyunpalatablethingandnationaliseit.TheplanannouncedonJanuary21stistheworstofbothworlds,andmis-soldinthebargain.Ifasuitabledealwithaprivate-sectorbuyercanbenegotiatedinthenextfewweeks,NorthernRockwillraisethemoneytorepayitsdebtbyissuingsome£30billioninasset-backedbonds,whichthegovernmentwillunderwrite.So,inthisnot-very-opaqueshell-game,thetaxpayerwillguaranteerepaymentofthemoneyNorthernRockborrowstorepaythetaxpayer.Inexchangeforitscontinuedsupport,thegovernmentwillmakethebankpayafeeandwilltakeasmallstakeinit;thebank'snewownerswillhavetocomeupwithsomeequityandagreenottopaythemselveswhoppingdividendsstraightoff.Butthepositionwillbegallinglyasymmetrical:thebank'sownerswillpocketmostoftheprofits,ifanyensue;andtaxpayerswillfootmostofthelosses,ifalotofthosematerialiseinstead.Investorswerenotslowtoseetheopportunity:NorthernRock'ssharesroseby46%whentheplanwasannounced,onthesamedayasthesharesofBritain'sblue-chipcompaniesfellby5.5%.Nosolutiontothismessyaffair—asubsidisedsale,nationalisationoroutrightbankruptcy—isappealing.Theargumentsforeachhaveoftenbeenrehearsed.Nationalisation,theleastbad,hasthevirtueofadmittingwherefinancialresponsibilitylies,andaligningpowerandpotentialprofitsaccordingly.Thatitoffendsshareholders,whoarerightlyrewardedfortakingriskswhenthingsgowell,isneitherherenorthere.Itistaxpayerswhomatter:taxpayers,andhonesty.Topretendthatthishybridisbothaprivate-sectorsolutionandthebestwaytoseetaxpayersmadewhole,wheninfacttheywillbestandingsuretyforthebankforyears,isbold.AlistairDarling,MrBrown'ssuccessoraschancelloroftheexchequer,canhavenosuchcertainty,ashousepricesandtheeconomyallturndown(seearticle).Heiswisetoprovidefewdetails.Timetogettougher\nAlthoughthegovernmentistooafraidofawakeningsleepingdogstoembracenationalisationoutright,itacknowledgesthatstateownershipremainsanoptionifnegotiationswithwould-bebuyersfallthrough.Andifitsetsthetoughrulesofengagementnecessarytogetadecentdealfortaxpayers,thatresultbecomesmorelikely.NorthernRockistopayafeeforthebondguarantee.Thatshouldbehefty:currentguessesof£400mto£500mayearalmostcertainlyunderstatethevalueintoday'stumultuousmarketsofsuchagold-bottomedundertaking.Andthegovernmentwantsastakeinthebusiness,inordertoprofitfromanyupside:again,talkof5-10%isfartoomodestgiventhatthebankwouldnotexist,stilllessmakeprofits,withoutofficialbacking.Itwouldmakesense,too,toinsistthatthebank'strueownersberepresentedonitsboard.IfthatmakesitmorelikelythatNorthernRock'sliabilitiesenduponthegovernment'sbooks,sobeit.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nPrivatespaceflightVirginbirthJan24th2008FromTheEconomistprinteditionAftermanyfalsestarts,spacetourismisabouttoarriveINOLDENdays,astronautswerefit,healthyyoungmenwithyearsofspecialisttraining.Now,allthatisrequiredtoshowtheRightStuffseemstobealargechequebookandareliableheartbeat.Ifan88-year-oldcanmakeitthrough“astronauttraining”(seearticle),thensurelyalmostanyonecan.ThatisgoodnewsforVirginGalactic,oneofanumberoffirmsproposingtotakepeopleintospaceatapricemeasuredinthousands,ratherthanmillionsofdollars.OnJanuary23rdthefirmunveiledthevehiclesitplanstousetogivetheworld'smoderatelywell-heeledpensioners(andanyoneelsewithacoupleofhundredgrandtoburn)therideoftheirlives.CynicswhowerearoundatthetimeoftheApollomissionsmaybeforgivenforthinkingtheyhavehearditallbefore.Then,everyonefromPanAmtoBritishRailimaginedgettingintospacetourism.Indeed,BritishRailtookoutapatentonaflyingsaucer.ButBritishRailthen,likeAmerica'sspaceagency,NASA,today,wasacossetedgovernmentbureaucracyandPanAm,althoughcommercial,hidbehindtheskirtsofaprotectionistAmericangovernment.Botharenowgonefromthespacerace.Intheirplaceisrealprivateenterprise:Rocketplane,EADS,SpaceAdventuresand,ofcourse,Virgin.Flying110kmintospaceonVirgin'sSpaceShipTwo,itselflaunchedfromaspecialaircraft,calledWhiteKnightTwo(seearticle),isbothasmallstepandagiantleap.Itissmallbecause,likeNASA'sfirstattempts,itisaquick,sub-orbitalflight—andpuristsmightarguethatrealspaceflightinvolvesgoingintoorbit.Itisgiantbecausenoprivatelyfundedefforthascomethisfar,norseemedsolikelytosucceed.Forthatsuccesstobesustained,however,thisprojectanditssuccessorsmustbringdowncostsandopenupnewmarketsanddifferentdestinations.Somefirmsarealreadyeyeingthemoon,thoughthatwouldrequiremuchmorepowerfulrockets.Nearertohome,theantipodesalsobeckon.AsystemsimilartoVirgin'scouldbeusedtolaunchspaceplanesthatwouldtravelfromonesideoftheEarthtotheotherin90minutes,deliveringbusinessmenandhigh-valuegoods:“Spacemail,whenitabsolutely,positivelyhastobethereyesterday.”RocketmanSuchapplicationswillneverbecheap;theyareunlikely,forexample,tousherinanerawhenLondonersponderattheirbreakfasttablesthemeritsofdinner(orrather,giventhetime-shift,asecondbreakfast)inSydney.Butanotherdevelopmentofthetechnologymayindeedbecomeubiquitous.Thatwouldbetouseittolaunchsmallsatellites.\nSatellitesarejustpackagesofelectronics,andthepriceofelectronicsisfallingwithoutforeseeableend.Itisthelaunchcost($20matime)thatrestrictstheiruse.AsuccessortotheSpaceShip/WhiteKnightcombinationcoulddealwiththat.First,thewholecaboodleismoreeconomicalthanusingthrow-awayrockets.Second,ratherthanhavingtowaitagesonthegroundfortherightlaunchwindow,anair-launchercanflytoabetterlocation.Suchchangescouldbringsatelliteownershiptocities,universitiesandcompanies.Ultimately,itmaybringitwithinthepurseofindividuals.Whocouldresisthavingtheirown,privatewindowontheworld?Itisfamouslydifficulttopredictthemarketfordisruptivetechnologies,whethertheybecomputers,muskets,jetenginesordigitalcameras.Butcheapaccesstospace,andtotheothersideoftheEarth,islikelytoberevolutionary.Formanyyearsthequestionhasbeenwhytaxpayersshouldpaytoputpeopleintospace.Thepointofprivate-sectorspacetravelisthattheworldwillrapidlyandaccuratelycometoaconclusionaboutwhatspaceisfor.Theinvisiblehandmay,indeed,pointupwards.Thenagain,itmaynot.Ifitdoes,however,itmayalsopointtoarevolutionofadifferentkind.ManypeopledatetheemergenceoftheenvironmentalmovementtothepublicationofaphotographtakenfromApollo8oftheEarthrisingoverthelunarhorizon.Whenspacebecomesademocracy—or,atleast,aplutocracy—therichrisk-takerswhohaveseenthefragileEarthfromabovemightformaninfluentialcohortofenvironmentalactivists.ThosecynicswholookatSpaceShipTwoandthinkonlyofthegreenhousegasesitisemittingmayyetbeinforasurprise.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nThailandGoodriddanceJan24th2008FromTheEconomistprinteditionAfterallowingThailand'selectionwinnerstokeeptheirprize,thegeneralsshouldtaketheirfinalbowAFPTHEblunderingsoldierswhodeposedThailand'sprimeminister,ThaksinShinawatra,in2006seematlasttohavegotsomethingright.Thisweeksawtherestorationofanelectedgovernmentfollowinglastmonth'selection.Barringfurthermishap,thecountryseemsbackontheroadtoliberalmultipartydemocracy.Thiswouldbegoodnewsforthe65mThaisandwouldsetanencouragingexamplefortheirfellowhalf-billionSouth-EastAsiansandthebillionormoreChinesetotheirnorth.Noneofthis,however,impliesthatThailand'sgeneralsareenlightenedguardianswhoservedthenationalinterest;stilllessthattheircoupwasjustified.Thejuntatrieditsutmosttothwarttherelativelybenignoutcomethatnowseemspossible.IthadMrThaksinandmorethan100colleaguesbannedfrompoliticsforfiveyears.HisThaiRakThaipartywasdissolved.Itre-formedasthePeople'sPowerParty(PPP)and,tothegenerals'dismay,wonfarmoreseatsthananyotherpartyintheelection,justshyofanoutrightmajority.TheThaipeople—particularlytheruralpoorwhobenefitedfromMrThaksin'sdevelopmentpolicies—spokeloudly.Theytoldthemilitary-royalisteliteinBangkokthat,forallhisfaults,theystillwantedMrThaksin,oralike-mindedalternative.SamakSundaravej,thePPP'sfiercelyright-wingleader,whocheerfullyadmittedtobeingMrThaksin's“proxy”,wasthisweekpoisedtobecomeprimeminister,attheheadofasix-partycoalition.Legalshenaniganssincetheelectionmightstillhavefrustratedthepeople'schoice.TheElectionCommissionheldanextravagantnumberofinquiriesintoallegationsofvote-fiddling,mainlydirectedatthePPP.AndtheSupremeCourtdecidedtohearseveralcasescallingfortheparty'selectionvictorytobeannulled.Whetherornottherewasanyunduepressureontheseinstitutions,theydidtherightthingintheend.Notenoughcandidateshavebeendisqualifiedormadetore-runpollstostoptheelectionwinnerstakingoffice.AndtheSupremeCourt,sensibly,rejectedtheideathatthePPPitselfshouldbebanned.Furthercasesarependinginvarioustribunalsbutsofartheomenslookgood.Thenewgovernmentshouldhaveaworkablemajority—butnotacrushingonelikethoseMrThaksinpreviouslyenjoyed.TheoppositionDemocratshavedonealotbetterthaninthepasttwoelections,soparliamentmayseemorevigorousdebate.TheElectionCommissionhasshownitselfvigilantenoughtosuggestthatThailand'sendemicvote-buyingwillbecomehardertogetawaywith.Overall,Thaidemocracystandsachanceofemergingfromthemessindecentshape.Itisnotoutofthewoodsyet,however.Thepoliticalsystemispronetotoomuchfieryanger,wildaccusationandviciousname-calling,andMrSamakisaparticularlybadoffender.TherearealsoworrieshemightbringbacksomeofMrThaksin'sworstpolicies,suchasa“warondrugs”(seearticle)thatappearedtosanctionextra-judicialmurder.MrThaksin'splannedreturnfromexilebringsotherworries.\nHiswifeishomealreadyandhasbeenbailed—havingpleadednotguilty—inaland-fraudcasebroughtbyanarmy-backedcorruptioninquiry.MrThaksinhimself,relishinghisvictory,mightorchestratesomesortofvengeanceagainstthecoupmakers,causingfreshunrest.Better,perhaps,ifhekeepshispromisetoquitpoliticsforever.ThelastpostBetterstillforGeneralSonthiBoonyaratglin,thecoupleader,andhisfellowjuntamemberstoretiregracefully,forswearingpoliticalmeddlingtoenjoytheamnestytheygrantedthemselves.Withluck,Thailand'spoliticalelitehastiredofitsinternecinestrife,andnormalparliamentarypoliticsareabouttoresume.Themany“liberals”whodespisedMrThaksinandapplaudedthecoupmayarguethatthisvindicatesthem.Nonsense.Notonlydidthecoupmakersfailtoproducethedamningevidenceofcorruptionandabuseofpowerthattheyneededtojustifyremovinganelectedgovernmentbyforce.Worse,theyloweredthebarforotherdisgruntledsoldiersseeingpoliticalsquabblesorcorruptionallegationsasanexcusetoseizepower—notjustinThailandbutinplaces,suchasthePhilippines,wheredemocracyremainsadelicateblossom.Thecoupmakersfailedbecausetheinterimgovernmentofbureaucratsandretiredsoldierstheyappointeddidarottenjob.This,andtheuncertaintyoverhowthejuntawouldgetoutofthemessithadcreated,consignedthecountrytomorethanayearofslowergrowth.Ascoupsalmostalwaysdo,thisonecausedmoreproblemsthanitsolved.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nSerbia'sfutureNoplaceelsetogoJan24th2008FromTheEconomistprinteditionSerbiashouldrecognisethatithasnoalternativetotheEuropeanUnionAFPLUCKYcountriesseldomhavetothinkhardaboutwheretheirfuturelies.Serbia,sadly,isnotoneofthem.ThemessagefromtheleadingcandidateafterthefirstroundofSerbia'spresidentialelectiononJanuary20thwasuncompromising.TheRadicals'TomislavNikolic,whotookalmost40%ofthevote,declaredthatSerbiamustturnitsbackonthenastyEuropeanUnionandsolidifyitslinkswiththeniceRussiansinstead.RightoncueGazprom,Russia'senergygiant,agreedtobuytheSerbiannationaloilmonopolyandtolinkSerbiatoitsplannedSouthStreamgaspipeline(seearticle).TheatavisticnationalismofMrNikolicandhispartyhaslongbeenhorriblyobvious.TheRadicals'nominalleader,VojislavSeselj,isontrialinTheHague,chargedwithcrimesagainsthumanityandethniccleansingduringtheBalkanwarsofthe1990s.SoMrNikolicisstandinginstead.Althoughhedidbetterthanfouryearsago,hemayyetlosetherun-offonFebruary3rdtotheincumbent,BorisTadic.ThesuspicioninBelgradeisthatMrTadichasstruckadeal(partlyinvolvingtheGazpromagreement)towinjustenoughsupportfromSerbia'sprimeminister,VojislavKostunica,tosqueakback.AsevenareluctantMrKostunicaknows,MrTadicisthebetterchoiceforthecountry.UnlikeMrNikolic,MrTadicunderstandsthatSerbianeedstokeepinwiththeEU.YetlikeMrNikolicandMrKostunica,herejectsindependenceforSerbia'slargelyethnic-AlbanianprovinceofKosovo,whichhasbeenunderUnitedNationssupervisioneversinceNATO'swartherein1999.Kosovo'sgovernmentisnowpoisedtodeclarethatindependence.IthasbeenholdingbackchieflytoavoidpushingmoreSerbvoterstowardsMrNikolic.Whenthedeclarationcomes,maybenextmonth,AmericaandmostEUcountrieswillrecogniseKosovo.Russia,however,willblockanyUNendorsement.Intruth,Kosovo'sindependencehaslongbeeninevitable.AfterSerbia'smisdeedsintheprovinceduringthe1990s,the90%ofthepopulationwhoareethnicallyAlbanianwillneveracceptrulefromBelgrade,evenwiththeautonomySerbiaisofferingthem.YetKosovo'sindependencewillstillbeconditional,asproposedlastyearintheUNplandrawnupbyMarttiAhtisaari,aformerFinnishpresidentwhopresidedovermonthsoffruitlesstalksbetweentheKosovarsandtheSerbs.TheSerbminoritymustbeprotected,asmustthemanySerbianreligioussitesinKosovo.AndtheKosovarsmustbestoppedfromjoiningupwithAlbania,sincethatwouldserveonlytodestabilisetheregiononceagain.KeepingtheBrusselsdoorajarButinhelpingKosovotoindependence,theEUalsoneedstoavoidprovokingahostileSerbiaintomakingahashofitsownfuture.InthepresentclimateinSerbia,thatwillbehard.EvenifMrTadicisre-\nelected,Serbiamaynotsignandratifythe“stabilisationandassociationagreement”thatisafirststepforanycountrytowardsjoiningtheEU.Indeed,theEUmaynotbereadytoproposeadealuntiltheSerbshandoveranotherallegedwarcriminal,RatkoMladic,toTheHague.Offerstoworktowardsvisa-freetravelintotheEUwouldbefarmoreofalure,butcouldtakemonthstonegotiate.Forthetimebeing,then,recognitionofKosovo'sindependencemaywellbringSerbia'sprogresstowardstheEUtoahalt.YetpoliticiansinBelgradeshouldnotimaginethattheyhaveaplausiblelong-termalternative—leastofalloneofSlavsolidaritywithRussia.AlltheirneighboursaretrudgingslowlytowardsEUmembership.RussiacannotofferSerbiathemarketaccess,theeconomicdevelopmentorthesecuritypartnershiponanequalfootingthattheEUcan.ItsrealinterestseemstobetobuyupSerbianenergyassetsonthecheap.TheonlylastingguaranteeofpeaceandprosperityacrosstheBalkanswillbeifallcountriesintheregion,includingKosovoandSerbia,burythehatchetandeventuallyjointheEU.Adecadeago,Slovakiafacedasimilarchoice,afteritbrokeapartfromtheCzechRepublic.ForsomeyearsSlovaknationalistswanderedoffthepathleadingtowardsEUmembership,followinganautocraticpopulist,VladimirMeciar.ButSlovakvoterscametorealisethattherewasnofutureinthat.TheydumpedMrMeciar,andthecountryjoinedtheEU,alongwithmostofitsneighbours,in2004.IfSerbiawantstoseeitsluckturn,itwillhavetotreadasimilarcourse.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nOnmigration,theNationalHealthService,Chineseexports,BruceForsythJan24th2008FromTheEconomistprinteditionTheEconomist,25StJames'sStreet,LondonSW1A1HGFAX:02078392968E-MAIL:letters@economist.comMendingwallsSIR–Yourspecialreportonmigration(January5th)discussedtheflagrantinefficiencyofbordercontrols.Furthertothepointsyouraised,wehavefoundthatstrengthenedbordersactuallymakeitmorelikelythatillegalsmugglingnetworkswillprosper.Tougherbordersmakeitharderformigrantstoenteracountryillegally,butthiscompelsthemtodealwithprofessionalsmugglers.Thesemigrantsoftencannotpaythesmugglers'feesupfrontandhavetoaccumulatesubstantialdebt(inthecaseofillegalmigrantsfromChinatotheUnitedStatesthiscanreachupto$40,000),whichisthenrepaidthroughinhumaneindenturedservitude.Ourresearchhasalsoshownthatsterndeportationrulesmakeiteasierforsmugglerstoenforcetheirdebt-contractswiththemigrantsbecausetheseworkersthenbecomeboundtounlawfulsweatshops.Tougherdeportationrulesmaythereforeevenincreasethestockofillegalmigrants.Moreover,thesepeopleareusuallylessskilledthanmigrantswhogotosocietiesthataremoreopenandlessreliantondeterrence.GuidoFriebelToulouseSchoolofEconomicsToulouseSergeiGurievNewEconomicSchoolMoscowSIR–Themovementoflabourfrompoorcountriestorichonescanhinderreformindevelopingeconomies.IlivedintheDominicanRepublicinthe1990s,whenmostDominicanswereutterlyobsessedwithescapingtotheUnitedStates.Onesurveyreportedthat60%wouldleaveimmediatelyiftheycould(inHaitiitwas80%).Byprojectingtheirfutureelsewhere,peoplebecamemoreapathetictowardsanalreadyweakdemocracy,removingthepressureformeaningfulchangeathome.GrantDeyoeElSegundo,CaliforniaSIR–TosupportyourthesisthatmigrantsbenefittheeconomyyoudeployedthefallacythatAmericansdonotwantthejobsthatillegalmigrantstake.Thereisnojobinthiscountrythathard-workingAmericansaretoolazytodo.Thetruthisthatweareunwillingorunabletoworkforpennies,whereasillegalmigrantsaremorethanhappytodoso.Somebusinessesexistsolelyonaflowofillegalworkerswhotakepositionswithnobenefitsandlittlepay.IfthesejobspaidanythinglikealivingwageAmericanswouldworkinthem.WilliamThompsonColumbus,OhioSIR–Anationhasahistory,aculture,anidentity.BritainisnotFrance,SpainisnotGermany,andnoneoftheseareBangladeshorMorocco.Nordotheircitizenswantthemtobecomeso.Peopledonotwanttobeoverrunbyforeignersofastrangereligion,adifferentrace,orexotic(andsometimesrepulsive)customs,evenifitmeansa1%riseineconomicgrowth.Noamountoflecturingwillchangetheseattitudes.\nThomasFarrellySeattleSIR–IthasbeenmyobservationthatrecentimmigrantstotheUnitedStatesupholdtraditionalAmericancustomsandconventionsquitewell.Theyusuallyspendqualityfamilytimebyutilisingpublicparksandmuseums,shoptogetherandoftengatherdailyforafamilymeal.Manyofusthird-andfourth-generationAmericanscouldbenefitfromemulatingtheirvalues.RobRyderColumbus,OhioSIR–Althoughrace,class,religionandsexhaveweakenedasrationalesfordiscrimination,itremainssociallyacceptableforgeographicalaccidentsofbirthtobeheldagainstpeoplefortheirentirelives.Yes,limitsonimmigrationarenecessaryforallsortsofpracticalreasons.Buttheyshouldbeseenforwhattheyare:intolerable,andthereforehopefullytemporary,curbsonthefreedomofpeopletoseekhappinesswherevertheymightfindit.TimoHannayLondonHealthmattersSIR–Regardingyourarticleonhealth-carechargesinBritain(“Please,sir,canIhavesomemore?”,January12th),allpubliclyfundedhealthsystemshavedifficultdecisionstomakeaboutwhattreatmentsshouldbemadeavailabletopatients.MoretreatmentsthaneverbeforeareavailableontheNationalHealthServiceandcancertreatmentandsurvivalrateshaveimproveddramatically.AfundamentalprincipleoftheNHS,supportedbyallpoliticalparties,isthattreatmentshouldbeavailabletopatientsbasedonneedandnotontheabilitytopay.Patientsare,ofcourse,entitledtoseekprivatemedicaltreatmentiftheysowish.YoumentionedareportbyDoctorsforReform,apressuregroupandwell-knownproponentofprivatemedicine,whichclaimedco-paymentsare“alreadycommonplace”intheNHS.Co-paymentsunderminetheprincipleoffairandequaltreatmentforallandriskcreatingatwo-tierhealthservice—oneforthosewiththeabilitytopayandanotherforthosethatdonot.SuchasystemwoulddirectlycontravenetheprinciplesandvaluesoftheNHS.BenBradshawMinisterofStateforHealthServicesLondonTradeadjustmentsSIR–YourarticleonChinesegrowthandexportscorrectlypointedoutthattheheadlineratioofexportstoGDPoverstatesChina'sdependenceonforeigndemand(Economicsfocus,January5th).However,the“trueexportratio”showninyouraccompanyinggraphmaygotoofartheotherway.Youcitedestimatesofexportsinvalue-addedtermsfromJonathanAnderson,aneconomistatUBS,thatstripouttheassociatedimportsandthensubtractinputspurchasedfromotherdomesticsectors.Butthisisonlythedirectvalue-addedinChina'sexports;MrAndersonexcludesthe“indirectvalue-added”generatedbyexports.Inordertoproduceexports,intermediateinputsmustbeused,andtheproductionoftheseinputscreatesthesecondroundofvalue-added.Thisprocessofcreatingindirectvalue-addedcanbetracedthroughouttheeconomy,asintermediateinputsareusedtoproduceotherintermediateinputs.Using2002input/outputtablesanddetailedtradestatisticsthatdistinguishprocessingandnormaltrade,IhavedevelopedamethodtodecomposeChina'sgrossexportsintototaldomesticandforeignvalue-addedfor87sectorsthatproducegoods.Mypreliminaryestimatessuggestthat,inaggregate,forevery$100ofChineseexports,$51.50isChinesedomesticvalue-addedand$48.50isimportedvalue-added.ZhiWangOfficeofEconomicsUnitedStatesInternationalTradeCommissionWashington,DC\nLife,isthenameofthegameSIR–AlthoughBagehotfelttheneedtocreateacomplexconstructaroundBruceForsythtomakesomeinterestingobservationsaboutBritain,heultimatelymissedthepoint(January5th).MrForsyth'senduringpopularityasanentertainerliesinthefactthatheisararityfortheBritishIsles:consistentlycheerful,smiling,positiveandoptimistic.LloydNathanHongKongCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nTheworld'ssilverliningSomewhereovertherainbowJan24th2008FromTheEconomistprinteditionInaweekoffinancialuncertaintywelookbehindtheheadlinestoaworldthatisunexpectedlyprosperousandpeacefulNaturePLPOLITICIANSseemdrawntodanger—asarhetoricaldevice,thatis.GeorgeBushjustifiedlastyear'stroopsurgeinIraqbysayingthatotherwisetheworldwouldbecome“amoredangerousplace”.GordonBrown,Britain'sprimeminister,saidthiswouldbe“adangerousyear”forhiscountry.VladimirPutintoldaNATOmeetingthattheworldhadbecome“moredangerous”becauseoftheBushadministration.Thissenseofimpendingdoomisnotconfinedtopoliticians.Publicattitudesgenerallyseemtohavebecomemorepessimisticandinward-looking.TheproportionofAmericanswhothinktheircountryshouldbeactiveintheworld(42%)isthelowestithasbeensincetheearly1990s.Supportforinternationaltradeandmultinationalcompaniesisfalling.Oppositiontoimmigrationisgrowing.Largeminoritiesinmostcountriessayglobalisationisbadforthempersonally.Althoughthemainperceivedthreatvariesbytimeandplace—fromclimatechangetoeconomicrecession—thegeneralmoodisabitdespondent.Andtheoutsideworldtendstobeviewedasasourceoftrouble.Indeed,foragreatmanypeoplethewaythingsareisprettyrotten:Burmesemonks,forinstance,ortheLuoinKenya.Lifeisnottoobrightforinvestorsatthemoment,either.Butisthebroaderpropositiontrue?Istheworldreallybecomingworseforthemajorityofmankind?Wearguethatitisnot.Tosomeextent,ourqualifiedoptimismisborneoutbyimpartialdata.Inthisarticlewelookatthreepiecesofevidence:theunderlyingsocialconditionsinpoorcountries;povertyalleviationoverthepastdecade;andtheincidenceofwarsandpoliticalviolence.Bythosemeasurestheworldseemstobeinratherbettershapethanmostpeoplerealise.MiraclesbehindtheturmoilInChina25yearsago,over600mpeople—two-thirdsofthepopulation—werelivinginextremepoverty(on$1adayorless).Now,thenumberon$1adayisbelow180m.Intheworldasawhole,astunning135mpeopleescapeddirepovertybetween1999and2004.ThisismorethanthepopulationofJapanorRussia—andmorepeople,morequicklythanatanyothertimeinhistory.Povertyalleviationhasgonehandinhandwithimprovementsinbasicservices.Diggingcanalsandbuildingwater-treatmentplantshasincreasedthenumberofpeoplewithaccesstosafewater:inSouthAsia,forinstance,thenumberofthosewithoutcleanwaterhasbeennearlyhalvedsince1990.Thankstothis,andtobetterpublic-healthprovision,therateatwhichpeoplediefrominfectiousdiseasessuchas\nmalariaandtuberculosisisfallinginmostpoorcountries,Africaexcepted.Thatinturnhascutchildmortality.In2007Unicef,theUnitedNationschild-welfarebody,saidthatforthefirsttimeinmodernhistoryfewerthan10mchildrenweredyingeachyearbeforetheageoffive.Thatisstillanawfullotbutitrepresentsafallofaquartersince1990.Lifeexpectancyhasincreasedabitinlow-andmiddle-incomecountries.Thelongmarchtoliteracyisnearinganend:three-quartersofpeopleaged15-25wereliteratein1975;nowtherateisnearlynine-tenths.Allthesethingsaretheresultsofpatientworkovermanyyears.Butperhapsthebiggestchangeaffectingpeople'sliveshaslittletodo,atleastdirectly,withdevelopmentpolicyorpublicspending.Peopleinpoorcountriesarenowabletoexertmorecontrolovertheirownfertility,andhenceoverthesizeoftheirfamilies.Agenerationagothebiggestworryaboutpoorcountrieswasover-population.Bookssuchas“ThePopulationBomb”(1968)and“TheLimitstoGrowth”(1972)predictedMalthusiancrisesincountrieswherewomenwerehavingfivechildrenormore.Sincethenthefertilityrate(theaveragenumberofchildrenawomancanexpectduringherlifetime)inlow-andmiddle-incomecountrieshascrashed.InEastAsiaandthePacific,theratewas5.4in1970.Nowitis2.1.InSouthAsia,thefertilityratehalved(from6.0to3.1).Intheworldasawhole,fertilityhasfallenfrom4.8to2.6inageneration(25years).Thebiggestdeclineisinthosecountriesthataremostinvolvedwithglobalisation(especiallyinEastAsia,thoughChinaisaspecialcasebecauseofitsone-childpolicy).Themostimportantexceptiontotheruleofdecliningfertilityissub-SaharanAfrica.Allthecountrieswithfertilityratesover5.0areinAfrica(withtheoneexceptionofYemen).Globalisation,itseems,leadstoashiftinthedirectionof“replacementfertility”:therateatwhichthesizeofapopulationeventuallystabilises.Thisisaremarkabledevelopment.Inclosedagrariansocieties,familiesneedalotofchildrenasinsuranceagainstdisaster.Butincountriesthathaveopenedthemselvesup,familiescanrelyonothersortsofprotection,suchasurbanjobsortrade.Thesedemographicchangeshelptocreateavirtuouscircleofgrowth.Whenfertilityrisesthenfalls,yougetabulgeofpeopleatandjustaftertheinflectionpoint.Thebabyboomerswereonesuchbulge.Between1960and1990EuropeandAmericahadrelativelyfewoldpeople(becausemortalityrateshadearlierbeenhigh),relativelyfewchildren(becausefertilityhadfallen)andadisproportionatelybignumberofeconomicallyactiveadults.These30boomyearswere(toborrowtheFrenchphrase)“lestrenteglorieuses”.Developingcountriesareseeingasimilarconfluencenow.Eventually,ofcourse,thedemographicbonusturnsintoademographiconus,asishappeninginpartsofEurope.Butthatisadifficultstoryforalatergeneration.Inthenextone,low-andmiddle-incomecountrieswillhaveademographicadvantagetoreinforcetheireconomicgains.UpandupandupThesesocialachievementshavenotcomeaboutbyaccident.Theyare,atleastinpart,attributabletogrowth.AWorldBankstudyof19poorcountriesconcludedthatevery1%increaseinnationalincomeperheadtranslatesintoa1.3pointfallinextremepoverty.Hencetheimportanceofthesecondbroadindicator:thestateoftheworldeconomy.Lastyeartheglobaleconomyentereditsfifthyearofover4%annualgrowth—thelongestperiodofsuchstrongexpansionsincetheearly1970s.Despitefinancialturmoilandsoaringoilandcommodityprices,worldgrowthbarelydippedin2007andtradegrewat9%,eventhoughtradetalksfellapart.Unlikepreviousexpansions,inflationremainedmoreorlessundercontrol.Moreover,growthwasspreadaroundfairlyevenly.AccordingtotheWorldBank,nationalincomeintheEuropeanUnionroseslightlymorethaninAmericaforthefirsttimeinadecade.GrowthinEastAsiawas10%,inSouthAsiaover8%,ineasternEuropealmost7%andinAfrica,thankstothe\ncommodityboom,over6%.Thiswasunprecedented.Inearlierbooms,fastgrowthseemedtohavebeenthepreserveofafewmiraclecountries,suchastheAsiantigers.Nolonger.Almosthalfofhumanity,spreadovermorethan40nations,livesincountriesgrowingat7%ayearormore,aratethatdoublesthesizeofaneconomyinadecade.Thisistwicethenumberoffastgrowersthatexistedintheyearsbetween1980and2000.Asaresult,theworld'seconomicbalanceistiltingfromrichindustrialisedcountriestoemergingmarkets.Theirshareofworldoutputin2006wasjustbelowhalf,andrising.TheInternationalMonetaryFundreckonsthatin2008ChinaandIndiawillbethelargestcontributorstoworldwidegrowthforthefirsttime.Thisdoesnotmeanthattheworldwillbeabletomakelightofaslowdowninindustrialisedcountries.NorwilldevelopingcountriesbeunaffectedbyproblemshittingAmericaandEurope.Nevertheless,sofartheyhavebeenhitlesshardbythecreditcrunchthanrichnationswere.Yieldsonhigh-riskcorporatebondsroseover300basispointsafterAugust2007,anindicationofthescaleofdamagetocompaniesinrichnations.Bycontrast,emerging-marketbondyieldsroselessthan100points,peanutscomparedwithwhathappenedaftertheAsianandRussiancrisesof1995and1998.Equitymarketsinemergingmarkets,unlikethoseinAmericaandJapan,shruggedofftheirlosseslastAugust.Theviewfromthebondandequitymarketsseemstobethatemergingmarketsareinabetterpositiontocopewithacreditcrunchthanrichcountriesare—andhavegrownbetterthantheywereatcoping(seearticle).Thereisaproblem,however.Manypeoplearguethatthepatternofworldgrowthoverthepast20yearshasnotbeenbeneficial.Theypointoutthatglobalisation-drivengrowthhasgonehandinhandwithagrowthininequality.Thisinequalityisaworryinitsownright(communitiesgetbrokenup;thepoorgetleftbehind)andalsoamissedopportunity(emergingmarketsmighthavedonebetterstillifonlytheirextrawealthhadbeendistributedmorefairly).Isthischargeagainstglobalisationtrue?And,ifitis,doesitfollowthatglobalisationhasbeenafailurebecauseitsbenefitshavebeenpinchedbytherich?Theevidencethattherichhavedonebestiscertainlycompelling.Inequalityhasriseninbothrichandpoorcountries.Itisthusasharpbreakfromthepatternestablishedbetween1950and1990,whentherewasageneraldeclineininequality,notablyinEastAsia,wherethetigersmanagedtocombinefastgrowthwithrelativelyequalincomes.Butitisnotsoclearthatglobalisation—inthesenseofopeninguptotradeandforeigninvestment—istoblame.UkraineandPolandbothopenedthemselvesinthe1990s.YetinequalityroseinPolandandfellinUkraine.Globalisation,itseems,sometimesincreasesinequality,sometimesreducesit.TheeducationalladderAmoreplausibleculpritforrisinginequalityseemstobetechnologicalprogress(seechartbelow).Thisisassociatedwithinequalityinpoorcountriesbecauseinemergingmarketsthepeoplebestabletotakeadvantageofnewtechnologyarethosewhoalreadyhaveaneducationandwhoareusuallyamongtherichestinsociety.Themoretechnologicalprogress,therefore,thebetterthewell-offdo.Buttolimittechnologytoreduceinequalitywouldbeacureworsethanthedisease.Technologyinitsbroadestsense—theflowofnewideas—istheonlywayofgettinggrowthratesupto5-10%ayear,theratewhichenablespoorcountriestocatchupwiththeWest.Withoutit,growthwouldbedependentonlabourandcapitalinputs,andgrowthwouldbejustafewpercent.Toreducetechnologicalprogress—evensupposingonecoulddoit—wouldbetocondemnpoorcountriestostaypoor.Infact,sincethemid-1990s,theincomesofthepoorestfifthhaveriseneverywhereexcept,marginally,inLatinAmerica,\nwheretheyhavebeenaffectedbytheafter-shocksofdebtcrises.InAsia,therealincomesofthepoorestfifthrose4%ayear;inAfrica,by2%ayear,fasterthantheriseforotherincomegroups.Theresultisthatthenumberofverypoorpeopleintheworldisfallingfast—eventhoughmanycriticscontinuetobelievethatthepoorhavenotreallybenefitedfromgrowth.In1990thoseon$1adayaccountedformorethanaquarterofthepopulationofdevelopingcountries.By2015,oncurrentrates,theproportionofverypoorpeopleshouldhaveshrunkto10%.Moreover,thesemonetarymeasuresprobablyunderstatetherealgainsfromthingssuchaslowerchildmortality,saferwater,literacyandothersocialachievements.Arichmanappreciateshisextracashbutthisdoesnotcomparewithwhatapoorfamilygainsfromseeinganinfantsurvivechildhoodorlearntowrite.Thegeneralreductioninthenumbersoftheverypoorweakenstheperceivedlinkbetweenglobalisationandinequality.Acrosstheworld,ifnotwithinnations,globalisationcanbeclaimedtobemakingpeoplemoreequal,notless.ThisismainlybecauseChinaandIndia,withtheir2.5billionpeople,aregrowingfastandnarrowingthegapwithrichcountries.FadingtrumpetsofwarEconomicgrowthimproveslivesunobtrusively.Themoredramaticexplanationforimprovedlivingstandardsisthedeclineinthenumberofwars,andindeathsfromviolenceandgenocide.Thisexplanationforprosperitywillseemfar-fetchedtomany.InternationalopinionhaslongheldthattheendofthecoldwarunlockedaPandora'sboxofethnicviolencethatsuperpowerrivalryhadkeptcontained(thesplittingofYugoslaviabeingtheclassicexample).Mostpeoplebelievethatthenumberofwarshasincreased;thatconflictshavebecomedeadlier(Iraqistypical);andthattherearemoreactsofgenocide(Darfurbeingjustthemostrecent).Yetthereissurprisinglylittleevidencetobackupthisimpression.Thenumberofconflicts(bothinternationalandcivil)fellfromover50atthestartofthe1990stojustover30in2005(definitionsareobviouslyfluid;thesearetheonesusedbyscholarsattheuniversitiesofUppsalaandBritishColumbiaforaprojectcalledthe“HumanSecurityReport”).Ontheirdefinitions,thenumberofinternationalwarspeakedduringthe1970sandhasbeenfallingslowlysince.Thenumberofcivilwarscontinuedtoriseuntilabout1990andthenfellprecipitately.Intotal,thedeathtollinbattlefellfromover200,000ayearinthemid-1980stobelow20,000inthemid-2000s.Suchnumbersaresubjecttoerroranddispute.FiguresfromtheWorldHealthOrganisation,forexample,aremuchhigher.Still,thedirectionofchangedoeslookplausible.Ingeneral,thenumberofnewwars,andnewepisodesinoldwars,seemstobefalling.Morerecently,2006sawawarinLebanon,violenceinCongoandconflictinNepal,SomaliaandTimor-Leste.By2007thosestruggleshadsimmereddown,somewhat.Youseeasimilarpatternwiththeworstofcrimes,genocide.Atthemoment,Darfurisastainonmankind.Butinaquantitativesense,thelate1980sandearly1990swereworse:thatperiodsawtencasesofthemassslaughterofcivilians,saysBarbaraHarff,oftheUSNavalAcademy,includingBosnia,RwandaandBurundi.Thecoldwaritselfwasnotallthatfrigid.Theprotagonistsfoughttheirwarsbyproxy:aboutathirdofconflictsfrom1950to1990wereconnectedtocold-warrivalry.Inaddition,duringtheearlyyearsofthatperiod,thereweremanywarsbetweenretreatingcolonialpowersandindependencemovements,asourceofviolencethathasalmostdisappeared.Allthisishardtosquarewiththenotionthatwarshavebecomemorefrequentanddeadliersincetheendofthecoldwar.Ontheotherhand,therehasbeenadramaticriseinthenumberofconflictsresolved.DuringthisdecadecivilwarshavecometoanendorhavebeenrestrainedinAceh,Angola,Burundi,Congo,Liberia,Nepal,\nTimor-LesteandSierraLeone.Theseplacesthendropoutofthenews.AsSherlockHolmesremarkedofthecuriousincidentofthedogatnight(“Thedogdidnothinginthenight-time...Thatwasthecuriousincident”),eventsthatdonothappencanbeasrevealingasthosethatdo.Abigexceptiontotheruleofdecliningpoliticalviolenceistheriseofterrorism.DespiteclaimstothecontrarybytheBushadministration,thenumberofinternationalterroristincidentshasrisensinceSeptember11th2001,afteradecadeofdecline.Thenumberofdeathsfromterroristactshasclimbedalmosteverywhere.Yetthispictureofworldwidegrowthismisleading.WhileitistruethatAsia,LatinAmericaandEuropehaveallexperiencedmoreterroristattacksthanbefore,theyarestillrare.Since2001,theMiddleEasthassufferedmoreviolenceandfatalitiesthantherestoftheworldputtogether.ViolenceintheMiddleEastisareminder,asifonewereneeded,ofthemanyills—climatechange,greenhousegases,chronicdiseasesinpoorcountriesandmuch,muchmore—thatneedtobesetagainsttheachievementsofthepastfewyears.Butthesuccessesprovidesomeperspective,bothtotheextentoftheworld'spersistentproblems,andtotheirsetting.Fragile:donotdropAnextraordinaryconcentrationofmisfortunesistobefoundinagroupofcountrieswhichtheWorldBanklabels“fragile”.Thisisaslightlylargercategorythantheso-calledfailedstates,suchasSomalia,wherethecentralgovernmenthasceasedtoexist.Itincludescountrieswherethegovernmenthaspartialcontrolofterritory(Sudan),whereitcannotdeliverbasicservices(Zimbabwe)andplaceswithhighlevelsofpoliticalconflict(Nigeria).Fragilestatescontainroughlyhalfthedevelopingworld'schildhooddeaths.Aboutathirdoftheirpeopleareundernourishedandmorethanthatdonothaveaccesstodrinkingwater.Theyusuallyhaveextremelyhighfertilityrates:mostofthecountrieswithfertilityratesover5.0arefragile.Inonewayoranother,theyaremuchmorelikelytobeaffectedbywars,refugeesandeverysortofpoliticalcrisis.Badgovernmentandlackofgrowthoften,thoughfarfromalways,gotogether.Whatevertheproblemsofglobalisation,theyaredwarfedbythepenaltiesofbeinguntouchedbyit.TheWorldSocialForum,agatheringofself-proclaimedprogressiveswhowanttoturnbacktrade,growthandglobalisationhasadoptedasitssloganthemotto“Anotherworldispossible”.Inreality,anotherandbetterworldispainfullyandfitfullycomingintobeing.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nRaceandtheDemocratsThecooksspoilObama'sbrothJan24th2008|LASVEGASFromTheEconomistprinteditionAnethnicsplitintheDemocraticracehurtsbothleadingcandidates—perhapstotheadvantageofRepublicanscomeNovemberEPA“IDON'Twantustogetdrawnintothisnotionthatsomehowthisisgoingtobearacethatsplitsalongraciallines,”saidBarackObamainadebateonJanuary21st.Well,toobad.AstheNevadacaucuseshadshowedtwodaysearlier,andasSouthCarolina'sprimaryelectionislikelytoconfirm,Democraticvotersarealreadydividedalongraciallines.Therealissueiswhowillsuffermorefromthisdivide,MrObamaorhismainrival,HillaryClinton,andwhetherthesplitmightendupcostingtheirpartytheWhiteHouse.MrObama'scandidacyatfirstseemedapost-racialtriumph.Whileherarelyaddressedtheissuedirectly,heseemedtoembodythehopethatAmericacouldtranscenditsdivisions.Iowa'slily-whiteelectorateflockedtohimjoyfully.ButMrObama'svictoryinthecaucusesthereprovokedattacksbyMrsClinton'sallies,whichsomeblacksinterpreted(atouchtendentiously)asethnicslights.Then,justasthingswerebeginningtocalmdown,Nevada'sHispanicswadedintothefray.InaconventionroomabovetheNewYork-NewYorkcasinoinLasVegas,astrongethnicpatternbecameapparentassoonasthecaucusopened.Defyingtheirunion,whichhadendorsedMrObama,aprocessionofHispanicmaidsandshort-ordercooksheadedtoHillaryClinton'scorner.Thankslargelytothem,shewonthatcaucusby95votesto70andwentontotakesevenoutofninecontestsontheLasVegasstrip.ACNNpollsuggeststhepatternwasrepeatedacrossthestate.Latinos,whomadeup15%ofcaucus-goers,gaveMrsClintona38-pointlead.BlacksfavouredMrObamaby69points.FewexpectedthatsomanyLatinoswouldturnout,orthattheywouldplumpsoheavilyforMrsClinton.FearingthemightoftheCulinaryWorkersUnion,whichrepresentscasinoandhotelstaff,herallieshadlaunchedalegalchallengetotheverycaucusessheendedupwinning.Onereasontheworkersbrokeranks,saidLuisRueda,acasinoporterandshopstewardwhovotedforMrsClinton,isthatunionleadersseemedtodecidetheendorsementwithoutconsultingtheirmembers.HispanicvotersaredrawntoMrsClintonformanyofthesamereasonsothersare:theyrememberthe1990sfondlyandwarmtohermessageofhardworkandresponsibility.Manyalsoadmireherforholdingtogetherafamilythatincludesaphilanderinghusband.Yetcrudernotionsmayhaveinfluencedsome.ItwouldnotbethefirsttimethatHispanicvotershadbeenputoffbyarivalcandidate'srace.\nBecausesomanyofthemareyoungorillegal,Hispanicshavemuchlesspowerthantheirnumberswouldsuggest.Itwasnotuntil2005thatLosAngeles,thenalmosthalfLatino,electedaHispanicmayor.Thisisvexingenough.WhatsharpensLatinoresentmentandgivesitaracialedgeisthatmanyliveinareaswhereblacksholdpower.InCalifornia's37thcongressionaldistrict,forexample,whichincludespartsofsouth-centralLosAngeles,Latinosoutnumberblacksalmosttwotoone.Yetblackpoliticiansinvariablycarrythearea.Lastyear,inaspecialelection,aLatinastoodagainsttwoAfrican-Americancandidates.Iftheblackvotehadsplit,shemighthavewon.Itdidnot,thanksinparttopleasforunityfromblackleaders,whomadeitclearthattheydidnotwanttheseattochangecolour.Suchslightsarenotsoonforgotten,andmaybereturnedinkind.In2001almostthree-quartersofHouston'sHispanicvotersrejectedablackDemocraticcandidateformayorinfavourofablue-eyed,conservativeRepublicanwhohappenedtobeCuban.WhenLatinosdowieldpoweroverblacks,asinMiamiandthesouthernCaliforniacityofLynwood,theyoftendosounapologetically.Afterall,theyfeelnoresponsibilityforslaveryandsegregation,ortheirlingeringeffects.MrObamahaspointedoutthatHispanicsvotedforhiminIllinois.Hefailstomentionthathisopponentinthe2004SenateracewasAlanKeyes,whoisnotonlyblackbutalsoclaimedtobemoresothanMrObama.ThesenatorfromIllinoishasatoncethemosttogainandthemosttolosefromaraciallydividedelectorate.Iftheyhadtochoose,DemocraticcandidateswouldprobablypicktheblackvoteovertheLatinoone:itisbiggerandmorepartisan.ButtherealprizeisnottheblackvoteortheLatinovotebutthewhitevote.AfractiouscontestthreatenstoturnMrObamafromapost-racialintoaracialcandidate.Smallwonderthat,inthisweek'sdebate,hestrovetoavoiddiscussingrace,preferringtotalkabout“low-incomepeople”andtheneedto“bringthecountrytogether”.ThereweresignsinNevadathatsomedamagemayalreadyhavebeendone.MrObamawassoundlybeateninHenderson,amostlywhite,middle-classsuburbofLasVegas.(IthelpedthatMrsClintonhammeredtheissueofhomeforeclosures,abigproblemlocally,duringawell-attendedrallyinthecity.)ThenextchallengeisSouthCarolina,whereblacksmakeupabouthalfoftheDemocraticelectorate.Toitsdiscredit,MrsClinton'scampaignhasalreadyputitaboutthatblackvotersarelikelytotipthestatetoMrObama.Animpressivevictorywouldthusbespunasasimplematterofethnicallegiance.Thisisaverydangerousgame.Inninemonthstheentirecountrywillgotothepolls.Withoutblackvoters,theDemocratswouldstruggletowinintheMidwestandcouldnotcompeteintheSouth.WithoutLatinos,theirdreamsofseizingwesternstateslikeColoradoandNevadawouldbemuchlesslikelytocometrue.Theriskfortheeventualnominee,whetherMrsClintonorMrObama,isthatanalienatedgroupmighttendtostayathomeinNovember—or,worse,sendabundleofvotestoacentristRepublicanxenophilelikeJohnMcCain.Ifthathappens,theWhiteHousecouldbelost.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nThestimuluspackageFullspeedaheadJan24th2008|WASHINGTON,DCFromTheEconomistprinteditionAdealisreached,itseems,onastimuluspackageReutersTeam-workTWOthingsthatalmostneverhappeninAmericalookedsettooccuronJanuary24th.AsTheEconomistwasgoingtopress,DemocratsandRepublicanshadreportedlyreachedadealonhowtostimulatetheflounderingAmericaneconomy.Andthebickering,slothfulCongressseemedlikelytopasssomeimportantlegislationquickly.Perhapsoneshouldnotbetoosurprised.Afterall,everyoneagreesthattheeconomyisinaterriblepickle.Theproblemisnotsomuchinthestockmarket,whichwasbuoyedthisweekbyadrasticinterest-ratecutbytheFedandamovetorescuebondinsurers.Thehousingmarketisinturmoil:constructionhasplunged,housepricesarefallingandthereseemsnoendinsight.SomuchofatypicalAmerican'swealthistiedupinbricksthatthethreatofhouse-pricedeflationstokespanic.Politiciansrarelyneedanexcusetoshowergratefulconstituentswithotherpeople'smoney.Nowtheyhaveapowerfulone.PresidentGeorgeBushaimstotrumpetthewholecompletedpackageinhisstateoftheunionspeechonJanuary28th.Butseveraldetailshavealreadyleaked.Householdswillreceivetaxrebatesofbetween$300and$1,200,dependinglargelyonhowmanychildrentheyhave.PressurefromDemocratsensuredthatevenfamiliestoopoortopaytaxeswillbenefit.Republicanpressureensuredthatevencoupleswhoearnasmuchas$150,000ayearwillgaintoo.Thepackagealsoapparentlyincludestaxcutsforbusinesses,givingfirmsincentivestoinvestinnewfactories,showrooms,machinetoolsandsoon.Smallfirmswillenjoylaxerrulesonwritingoffexpensesandailingfirmswillgetrebatesfortaxesalreadypaid.Tohelpthehousingmarket,thepackageincludesaplanthatwillallowFannieMaeandFreddieMac—twohugegovernment-backedfirmsthatfinanceandguaranteehomeloans—tobuyupmortgagesmuchlargerthanthe$417,000maximumcurrentlypermitted.Criticsworrythiswillonlydelayanecessarycorrectioninthehousingmarket;buttheywillprobablybeignored.Bothpartieshavecompromised.Democratswantedtoexpandfoodstampsandunemploymentbenefits,buthavebackeddown.Republicanswantedtotargettherebatesatthosethatpayincometaxes,but\nhavereportedlyagreedtoextendthemtotheverylargenumberofAmericanswhodonot.ThepackagecouldbepassedbyCongressinaslittleasaweekortwo.Dividedgovernmentmeansthatbothpartiescouldgetblamedforasevererecession,andneitherwantsthatwithanelectionlooming.Oneshouldneverunderestimatethecapacityofindividualsenatorstodelayeventhemostpopularbills,butthemoodinWashingtonisforaction,boldandspeedy.Whetherthestimuluspackagewillpreventarecessionisanyone'sguess.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nBarackObama'schurchHolymolyJan24th2008|CHICAGOFromTheEconomistprinteditionThetumultoverBarackObama'schurchONTHEeveofMartinLutherKingday,BarackObamatooktothepulpittotalkaboutrace.Itwasapowerfulmoment:ablackcandidatespeakinginKing'sformerchurchinAtlanta.“Wecannolongeraffordtobuildourselvesupbytearingeachotherdown,”hedeclared,callingforallracestounite.ThespeechatKing'schurchwas,aboveall,inclusive.Unfortunately,MrObama'sownchurchisaccusedofbeingtheopposite.MrObamahasbeenamemberofChicago'sTrinityUnitedChurchofAPChristfor20years.Someconservativesarecriticisingthechurch'smottoofbeing“unashamedlyblackandunapologeticallyChristian”.Amysteriousmailcampaignclaimsthechurchisracist.Isittrulyaliabilityforthecandidatewhoclaimstotranscendallthat?TwolinesofcriticismhaveemergedagainstTrinity.Thefirstconcernsitsbasicmission.Trinity's“blackvaluesystem”includesacommitmenttothe“blackcommunity”andthe“blackworkethic”.TuckerCarlson,apunditforMSNBC,callsthisa“raciallyexclusivetheology”.SeanHannityofFoxNewsmischievouslysuggestedtakingTrinity'smottos,exchanging“white”for“black”andimaginingtheoutragethatwouldcause.DwightHopkins,aprofessorattheUniversityofChicagoandamemberofTrinity,countersthattheethnicidentificationofchurchesis“averyAmericanChristianpractice”.Everydenominationhasitsownsects—lookatLatinoPentecostalchurches.Trinityisinthepoor,mostlyblackSouthSide;itsmessageofblackself-helpreflectsthis.Butwhitesaremadeperfectlywelcomewhentheyattend.AllwelcomeThesecondlineofcriticismisaimedspecificallyatJeremiahWright,Trinity'spastor,whowillretirethisyear.OnJanuary15thacolumnistfortheWashingtonPostwrotethatMrWrightadmiresLouisFarrakhan.MrObamapromptlycondemnedthe“anti-SemiticstatementsmadebyMinisterFarrakhan”,andhasalsostressedthatMrWrightsometimessaysthings“thatIdeeplydisagreewith”.ButthecandidateiscarefultomaintainhisconnectiontoTrinity.AsayoungcommunityorganiserinChicago'spoorestareas,hewasstruckbyMrWright'smessageoflinkingtheBibletoblackself-improvement.ItwasatTrinitythatMrObamanurturedbothhisfaithandhisracialidentity.TrinitymightremainapointofstrifeifMrObamawinstheDemocraticnomination,thoughmostAmericanswillnotbesurprisedthatablackmanbelongstoablackchurch.Itwillhelpthathehasheld“faithforums”,explaininghisfaithandurgingotherstosharetheirs.Butitisstillatrickybalancingact.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nTheRepublicansMcCainbuildsmomentumJan24th2008|ABOARDTHEUSSYORKTOWNFromTheEconomistprinteditionJohnMcCainisnowtheRepublicanfront-runner,buttrip-wiresawaitTHEdaybeforeSouthCarolina'sRepublicanprimary,JohnMcCainheldarallyonanoldaircraftcarrier,theUSSYorktown.Thebackdropworked.VoterswereremindedoftheArizonasenator'sheroism.ShotdownoverHanoiin1967,hebrokebotharmsandaleg,wascapturedandtortured,yetrefusedtobefreedunlesshisfellowprisonerscametoo.Hishairturnedwhite,andtothisday,hecannotraisehishandshighenoughtocombit.Yetthereisvigourintheoldwarrior.HewonSouthCarolinahandily,APbeatingMikeHuckabeeby33%to30%.AddedtohisearlierwininNewHampshire,thishasmadehimthefavourite,albeitanuncertainone,towintheRepublicannomination.Andthepolls,forwhattheyareworth,showhimbeatingeitherHillaryClintonorBarackObamainNovember.VictoryinSouthCarolinawasespeciallysatisfying.BeforeMrMcCain'sspeechontheYorktown,PhilGramm,aformersenator,praisedhiswife,CindyMcCain,notingherdecisiontoadoptaBangladeshiorphanwhomightotherwisehavedied.Nothingwassaid,buteveryoneintheaudiencerememberedtheunwittingroletheMcCains'adopteddaughterplayedintheSouthCarolinaprimaryin2000.SomeonespreadtheutterlyfalserumourthatshewastheresultofMrMcCain'sadulterywithablackwoman.IntheSouth,suchlibelshurt.GeorgeBushtrouncedMrMcCaininSouthCarolina,endinghiscandidacy.ThatwasbackwhenAmericawasatpeace.NowitislockedinastruggleitlookedlikelosinguntilPresidentBushtookhisoldrival'sadviceandsentmoretroopstoIraq.OnJanuary18th,USATodayreportedthatBaghdadwas75%secure.MrMcCaindrewparallelsbetweentheAmericansservinginIraqandthe“greatestgeneration”thatfoughtagainstJapan.TheYorktown'stoughestfoes,hesaid,werealsosuicide-bombers.CharacterisdestinySouthCarolinaishometomanysoldiers,servingandretired.TheyadmireMrMcCain,butthatisnotwhyhewon.“It'saquestionofcharacter,”saysBrianThomas,whosellsconstructionmaterials.MrMcCainstrikeshimasamanofgreatersteadfastnessandintegritythanhisrivals.“I'mactuallyagainstthewarinIraq,”saysMrThomas,“Butnowwe'retherewehavetofinishit.Andhe'sthemantodoit.”Theweek'sbigloserswerethetwoSoutherners,MrHuckabeeandFredThompson.MrHuckabee,aformergovernorofArkansaswhowontheIowacaucusesearlierthismonth,crankedupthegoodol'boycharmanextranotchinSouthCarolina.InClemson,acollegetown,hetoldajokeabouttwoboysfromNewYorkwhodecidetotakeupfarming.Theyneedamule.Astorekeepersellsthemtwo“muleeggs”—watermelons.Theirtruckhitsabump,andonemelonfallsoffandshatters.Ajackrabbitstartsnibblingit.Thecityboysthinkithashatchedababymule.Theychaseit.Itwhizzesoff.Onecityboyisupset.Theotherfiguresitisnotsobad:hewouldn'twanttoploughthatfastanyway.Runningforpresident,saidMrHuckabee,islikeploughingthatfast.Anddespitehisimpressivelossofweight,itseemsMrHuckabeecan'thandlethepace.Hedidwellamongevangelicals.Buthefailedtobuildonthisbase.HisbashingofbigcorporationsandvowtoabolishtheInternalRevenueServicewonoversomepopulists,butnotnearlyenough.Ifhecan'twinintheSouth,hishomeregion,howcanheprevailnationally?\nMrThompson,aformersenatorfromTennesseewhowascountingonawininSouthCarolinatorevivehiscomatosecampaign,camethirdanddulydroppedout(seearticle).MittRomney,aformergovernorofMassachusettswhowoninMichiganlastweek,camefourth.Butthishurthimlessthanitmighthavedone.RealisingthathewasgoingtoloseSouthCarolinadespitespendingafortuneontelevisionspots,MrRomneyabandonedthestateandcampaignedinsteadinNevada,whichalsovotedonJanuary19th.MrRomneywontherewithahefty51%ofthevote;RonPaul,alibertarian,camesecondwith14%.MrRomney'srivalsscoffthatanyonecanwinastatewherenooneelsecampaigns.Hisboosterssayheplayedapoorhanddeftly.Eitherway,helivestofightagaininFloridaonJanuary29th.Thepollspredictafour-wayscrimmageinFlorida.RudyGiuliani,aformermayorofNewYorkwhoskippedthepreviousprimariestoconcentrateontheSunshineState,isailingbutstilldangerous.MrRomneyandMrHuckabeearebattlingtopickupMrThompson'sconservativesupporters.MrMcCainhasmomentumandhopestowinMrThompson'sendorsement—thetwomenarefriends,eveniftheirsupportershavelittleincommon.Anythingcouldhappen.Right-wingtalkradiohostsareburstingtheircheeksoverMrMcCain'sresurgence,forthreereasons.MrMcCainsponsoredaliberalimmigrationbill(whichfailed)andarestrictivecampaign-financelaw(whichpassed).HealsoopposedMrBush'staxcuts(because,heprotests,theywerenotbalancedbyspendingcuts).RushLimbaugh,themostpopularofthetalkradiocrew,saysaMcCainnominationwoulddestroytheRepublicanParty.ButjudgingbyMrMcCain'ssuccesssofar,notallMrLimbaugh's“dittoheads”(ashisfanscallthemselves,sincetheyagreewithhimsooften)agree.InFlorida,however,MrMcCainwilllackoneadvantageheenjoyedinSouthCarolina.Florida'sprimaryis“closed”.Thatis,onlyregisteredRepublicanscanvote.InSouthCarolina,independentscanvoteineitherprimary.AmongthoseofthemthatvotedintheRepublicanprimary,MrMcCainledby17percentagepoints.Heismuchweakeramonghard-coreconservatives.AtagunshowinSouthCarolinaonprimaryday,wheretablesbuckledbeneathrifles,pistols,crossbows,machetesandevenaspikedclub,itwashardtofindasingleMcCainfan.“HesidedwiththeKennedyguy[TedKennedy]ongivingtheillegalaliensSocialSecuritybenefits,”complainedPaulBennett,agunsalesman,“Ijustcan'tbelievethat!”Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nOnthecampaigntrailPrimarycolourJan24th2008FromTheEconomistprinteditionTherulesofthegame“BecauseI'manordinaryperson,Ithoughtthattheymeant,'What'syourbiggestweakness?'IfIhadgonelastIwouldhaveknownwhatthegamewas.AndthenIcouldhavesaid,'Well,youknow,Iliketohelpoldladiesacrossthestreet.Sometimestheydon'twanttobehelped.It'sterrible.'”BarackObamaexplainswhyhisadmissionduringadebatethathispaperworkwasdisorganisedcametobeusedagainsthim.AssociatedPress,January18thNewbestfriend“Ittookusawhile,butwhat'seightyearsamongfriends?”JohnMcCain'svictoryspeechafterwinninginSouthCarolina,January19thTheYoungandtheRestless“I'mafraidImayhavetosendmy95-year-oldmotheroverandwashChuck'smouthoutwithsoap.”JohnMcCain,campaigninginMiami,respondstoChuckNorris'scommentsabouthisage.MrNorris,aMikeHuckabeesupporter,isonlyfouryearsyoungerthanSenatorMcCain.CNN.com,January21stVegas,baby“IwouldkindofliketogobacktotheoldLasVegassaying,though.Youknow,'WhathappensinVegasstaysinVegas'?Ihopethatturnsouttobetrueinthiscase.”JohnEdwardsplanstogetpastanotherloss.CNN,January20thSoutherncomfort“Youdon'tlikepeoplefromoutsidethestatecominginandtellingyouwhattodowithyourflag.Infact,ifsomebodycametoArkansasandtolduswhattodowithourflag,we'dtellthemwhattodowiththepole,that'swhatwe'ddo.”MikeHuckabee,campaigninginSouthCarolina,raisesthenon-issueoftheConfederateflag.CNN.com,January17thWhitemencan'tdance“Iwouldhaveto,youknow,investigatemoreofBill'sdancingabilities,youknow,andsomeofthisotherstuffbeforeIaccuratelyjudgewhetherhewasinfactabrother.”BarackObama,inaSouthCarolinadebate,questionsBillClinton'sstatusasthefirstblackpresident.January21stCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nHealthcarecostsBoonorbane?Jan24th2008|NEWYORKFromTheEconomistprinteditionMedicarespendingissoaring,butcouldthatultimatelyharmtheelderly?WHENGeorgeBushsignedacontroversialbillthatreformedMedicare,thegovernmenthealthplanfortheelderly,intolawbackin2003hedeclareditwouldbe“thegreatestadvanceinhealth-carecoverageforAmerica'sseniorssincethefoundingofMedicare.”Thereform'scentralprovision,knownasPartD,subsidisesthesupplyofprescriptiondrugsbyprivateinsurers.Criticsmockedthechaoticlaunchofthatscheme,andfeareditshugecostwouldendupwreckingthebudget.Sowhogotitright?Atfirstblush,itwouldseemthatMrBushdid.Despitethoseteethingpains,thePartDplanhastakenoffinearnest.Manymillionshavesignedup,andprivateinsurershaveflockedtothescheme.Pollsshowtheplanispopular.Butlookcloserandtheplan'swartsappear.Foronething,aspredicted,itishugelycostly.TheofficialCentresforMedicareandMedicaidServicesrecentlyestimatedthatwhileoverallhealthspendinggrewonly6.7%in2006to$2.1trillion,aboutthesamerateofincreaseasin2005,Medicarespendingshotup18.7%—doubletheriseayearearlierandthefastestsince1981.Thatcouldwellaffecttheelderlyincomingyearsbyforcingthegovernmenttomakecutselsewhere.Mindfulthatrecessionmaybecoming,DemocratsarenowtryingtoboostspendingonMedicaid,thegovernmenthealthschemeforthepoor,bytackingonprovisionstothebigeconomicstimuluspackagewendingitswaythroughCongress.BushadministrationofficialshavemadecleartheywillnotallowcutsinPartD,assomeDemocratspropose,sohowtopayforthisisunclear.WhatisclearisthatcostsarealreadysqueezingMedicare,asabigrowoverdoctors'payreveals.DoctorsandhospitalsalreadyhadadisincentivetotakeonMedicarepatients,ascost-cuttinglawsenactedbyCongressyearsagowereanywayhurtingtheirmargins.ButinlateDecember,Congresswentfurther,andverynearlyenactedamandatory10%cutindoctors'reimbursementsforMedicarepatients.Intheend,doctorsgotasix-monthreprieve;effortsarenowunderwayintheSenatetoextendthatreprieveforafurthertwoyears.Ifsuchcutsgothrough,mostdoctorswillthinkagainabouttreatingMedicarepatients.MrBush'sMedicarereformsarepopulartoday,butabacklashmaybecoming.Someprivatefirmshavebeencaughtmanipulatingtheelderlyintosigningupforinappropriateplans.Questionsarebeingaskedaboutwhythepublicissubsidisingthemarketingexpensesofpharmaceuticalcompanies—expensesthatthepublicsectordoesnotincur.ThosedoubtswillturnintohowlsifPartDputstherestofMedicareunderthescalpel.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nFredThompsonbowsoutLights,camera,curtainsJan24th2008|ANDERSON,SOUTHCAROLINAFromTheEconomistprinteditionAlacklustrecampaignlimpstoahaltHESLOUCHEDontothestagetolightapplause.Herambledlikeamanwithhismouthfullandnothingparticularonhismind.HeplayeduphisSouthernroots.“It'sgoodtobebackwherepeopleknowhowtocookgreenbeans,”hesaid,referringtotheSouthernhabitofboilingthemtodeath.Theaudiencechuckled,buttheynumberedonlyafewdozen.MostofthefolksatRyan'ssteakhousepaidmoreattentiontothebuffetthantoFredThompson.MrThompson,aformersenatorfromTennessee,gaveuprunningforpresidentthisweekafterfailing—byawidemargin—towintheRepublicanprimaryinnearbySouthCarolina.Rarelyhasacandidatedisappointedsomanysupporterssoquickly.Lastyear,whenconservativesweresearchingdesperatelyforsomeonebothsolidlyconservativeandelectable,MrThompson'snamecameup.Heisamoviestarwithacommandingvoice,theyreasoned.PerhapshewillturnoutlikeRonaldReagan.Hedidn't.UnlikeReagan,whowasgovernorofCaliforniabeforehebecamepresident,MrThompsonhasnoexecutiveexperiencetospeakof.Hehadcoherentpolicies—hisbeliefinfederalismisheart-felt,andsomeoneputsomeworkintohisplanforSocialSecurity.Butheisalazyanddisorganisedcampaigner,sofewvoterseverfoundoutwherehestood.Tohisfans,MrThompsonwastherealthing:pro-life,anti-tax,plain-spokenandunlikelyevertochangehismindaboutanything.“I'vedrivenallaroundthiscountryandIseewhat'sgoingon,”saidBobWilkes,acraggytruckdriveratRyan'ssteakhouse.Thereare,apparently,toomanyillegalaliens,toomuchwelfareandayoungergenerationthat'sall“me,me,me”.MrThompsonisthebestcandidatetoprotectthecountry,saidMrWilkes.Hemustbesad.MrThompson'sexitwillbenefitoneofhisrivals,butitisunclearwhich.MrHuckabeeisnowtheonlySouthernerintheRepublicanrace.MittRomneyistheonly“full-spectrum”conservative;atleast,heclaimstobe.MrThompsonhimselfissaidtopreferJohnMcCain.Butanyofthesecandidatescouldgrabsomeofhissupporters,ascouldRudyGiuliani.MrThompson,meanwhile,canalwaysgobacktoplayingpresidentsonthescreen.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nRacingAllbetsmaybeoffJan24th2008|NEWYORKFromTheEconomistprinteditionOff-trackbettinginNewYorkcouldbeinitsfinalstretchTHEcitythatdoesn'tsleepisnotallowedtodoahostofnaughtythings:thestripjointswerepushedoutofTimesSquareyearsagoandsmokinginbars,restaurantsandotherpublicplaceswasprohibitedin2003.NewYorkerscannolongertalkonmobilephonesincarsorinschools.Norcantheyeatwhattheywant:thecityhasbannedartificialtransfatsinrestaurants.Thepolicebegancarryingarounddecibelmetreslastsummertoenforcenewnoiseordinances.Now,itlookslikegamblingmaybethenexttogo.APOnestepaheadofthecreditorsNewYork'sOff-TrackBettingCorporation(OTB),thecity'squasi-publicbookie,revealedaplanlastweekthatmayshutdownitsentireoperationbymid-June.AlthoughtheOTBgrosses$1.1billionayearand1.6mwagersareplaceddaily,mostofthetakingsareusedtopayoffwinningbetsandonoperatingcosts.Someoftheremaining$125misdisbursedtothecityandtoNewYorkstate,butalargechunkendsupintheracingindustry'scoffers.MichaelBloomberg,NewYork'smayor,contendsthesepayoutsexceednetprofits,creatingdeficitsgoingbackatleastfiveyearsandaprojected$13moperatinglossfor2008.TheOTBhasineffectbeenoperatingintheredforyears,buthasuseditsreservestokeepgoing.Bythissummeritwillneedacashinfusionjusttomakeendsmeet.MrBloomberghassaidhehasnointentionofsubsidisingthelargestlegalgamblingoperationinthecountry—notleastbecausethecity'sshareoftherevenueshasdwindledwhilethoseofthestateandtheracingindustryhavegrown.TheOTBwasoriginallydesignedtoraisemoneyforthecityandthestateandtotakegamblingoutoforganisedcrime'scontrolbyprovidingalegaloutletforbetting.Duringthe1980s,itearnedthecity$65mayear.Justsevenyearsagotheentitywasalmostsoldfor$250m.Today,itsbleak-lookingparloursarefrequentedbyanageing,dwindlingbaseofpunters.BennettLiebman,whoheadsaracingthink-tankatAlbanyLawSchool,thinksclosingthebettingshopsisamistakebutalsothatgovernmentshouldn'tbeinthegamblingbusinessinthefirstplace.Hethinksthemayor'sthreattoshutupshopmaybejustabluffinanattempttowrestmoremoneyfromthestate,whichisbusywithanotherracing-industrycrisis.NewYork'sstatelegislatureisinthemiddleofnegotiatinganewfranchisetoseewhowilloperatethe\nstate'sthreethoroughbredracetracks.EliotSpitzer,NewYork'sgovernor,wantsthefranchisetoremaininthehandsoftheNewYorkRacingAssociation(NYRA)foranother30years.TheNYRA'strackrecordisnotimpressive.Ithasspentthebestpartofadecademiredinscandal(ithasbeenunderfederalandstateinvestigation),financialdistress(bankruptcy)andinefficiency.ItsfranchiseexpiredonDecember31st.Ithasbeengiventwotemporaryextensions,whilethepoliticianscontinuetohammeroutadeal.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nLanduseinColoradoWheregascomescheapJan24th2008|GARFIELDCOUNTY,COLORADOFromTheEconomistprinteditionSavingthemountainsfromtheoilprospectorsAFEWmilesupcountyroad215,northofthetownofParachute,themountainvalleysarecriss-crossedwithdirtroadsanddottedwithdrillingrigsandnatural-gaswells.Thisarea,privatelyownedbyEnCana,anexplorationcompanythatoperates2,800gaswellsintheregion,isoneofmanydrillinghotspotsinGarfieldcounty,thecentreofagasboominnorth-westernColorado.Improvedextractiontechnologyandhighgaspricesmeantheboomhereshowslittlesignofslowing.ButsomeworrythatrapidenergydevelopmentintoincreasinglyremoteareaswillruinColorado'sdramaticallybeautifulmountainlandscape.ThesharpestcontroversyisoverproposeddrillingonpubliclandontheRoanPlateau,a200-square-mile(518squarekm)areanearParachutethatisstillrelativelywild.LastJunethefederalBureauofLandManagement(BLM),whichcontrols8.3macres(3.4mhectares)inthestate,announcedamanagementplanallowingforupto1,540wellson53,000acresofgas-richlandonandaroundtheplateau.Anumberofwilderness-protectionadvocatesandhuntingorganisationsareurgingColoradopoliticianstoblocktheplan.Sofar,effortsinCongresstobandrillingontheplateauhavefailed.Butprogresshasbeenmadeatstatelevel.LastJuly,aftermuchprodding,theBLMagreedtosuspendtheleasesaleandallowthegovernortoconducta120-dayreviewoftheplan'senvironmentalandeconomicimpact.Theadvisoryreport,releasedlatelastmonth,recommendsallowingsomedrilling,butwithadditionalrestrictionstoprotectenvironmentallysensitiveareas.Thechiefworryisoverwildlifehabitat.Oneofthelargestmule-deerherdsinNorthAmericaspendsthesummerontheplateau—asdoesColorado'slargestmigratingelkherd.Itisafavouriteplaceforbig-gamehunters:8,000ofthemhuntedtherelastyear,andrecreationgenerates$5mannuallyforthelocaleconomy.Energydevelopmentcouldchangethis.Drillingpadsandnewroadsbreakuphabitat.A2005studyinWyoming'sSublettecountyfoundthatdrillingtherecontributedtoa46%decreaseinthemule-deerpopulationoverfouryears.Openinguplandforenergydevelopmenthasbeenafederalprioritysince2001.ThenumberofdrillingpermitsgrantedonfederallandinColoradorosefrom79in1996to650in2006.Lastyearitwascloserto800.Althoughlocaloilandgascompaniesinvestanaverageof$1.6mperwell,leasingBLMlandfor\nexplorationanddrillingrightsischeap.Biddingforaten-yearleasestartsatjust$2anacre.Althoughthegovernor'scompromisefortheRoanPlateauseemsreasonabletomostinvolved,persuadingtheBLMtoalteritsplanswillbedifficult.In2004itrebuffedsimilareffortstolimitoilandgasdevelopmentonNewMexico'sOteroMesa.Asaresultofthis,perhapsthebestchancetohaltthedrillingmaystilllieincongressionalaction.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nLexingtonOfftheleashJan24th2008FromTheEconomistprinteditionDemocraticpoliticsisallaboutBill—againIllustrationbyKevinKallaugherTHEDemocratsareinthemidstofmakinganhistoricchoicebetweennominatingtheirfirstfemalepresidentialcandidateortheirfirstblackpresidentialcandidate.Andwhoiseverybodytalkingabout?Acertain61-year-oldwhitemalewithahabitofwafflingonabouttheolddays,fallingasleepinpublicandturningpucewhencrossed.Formostex-presidentsretirementisagoldentime.Theytopuptheirpersonalfortunes,polishtheirreputations,performgoodworksandindulgeintheirhobbies(skydiving,inthecaseofGeorgeBushsenior).RichardNixonturnedhimselfintoaforeign-policysage.JimmyCarterbuildshousesforthepoor.RonaldReaganwrotemovinglyaboutAlzheimer'sbeforethediseasesilencedhim.ForyearsBillClintontrodthesamepath.TheClintonGlobalInitiativeiswidelyregardedasamodelofitskind.MrClintonteamedupwithMrBushseniortoraisemoneyforthevictimsoftheAsiantsunamiandHurricaneKatrina.ThemerementionofhisnamewasenoughtoputthedevoteesofDavosandothersuchgatheringsintoaswoon.ButoverthepastfewmonthsMrClintonhasdowngradedhimselffromglobalstatesmantopoliticalhatchet-man.Noformerpresidenthasinsertedhimselfsowholeheartedlyintoapresidentialrace.(MrBushseniorstayedinthebackgroundofhisson'scampaign,anddeclinedtogetstuckinevenafterJohnMcCainwoninNewHampshire.)MrClintonhasnotonlydismissedBarackObamaasarollofthediceandapurveyoroffairytales.HehasalsorippedintoawkwardreportersandwanderedintotheNevadacaucusestocanvassforhiswife.HeisspendingmoretimecampaigninginSouthCarolinathanthecandidateherself.MrClintonseemsintentonplayingSpiroAgnewtohiswife'sNixon,butwithoneimportantdifference:Agnewwentaftertheotherside.MrClinton'sbehaviourhascausedconsternationintheupperranksofhisparty.JonathanAlterreportsinNewsweekthattwoleadingpartyfigureswhoareneutralintherace,TedKennedyandRahmEmanuel,havetoldMrClintontochangehistone.Severalblackleadershavepubliclyupbraidedhim.SomeofMrsClinton'sconfidantsarealsoworriedthattheirattack-doghasatouchofthemange.MrClinton'sstumpspeechestendtonarcissism—particularlywhenheisreflectingonhisgloryyearsinthe\nWhiteHouse.HeclaimsthatheneversupportedtheIraqwar,astatementthatdoesnotstanduptoacoupleofminutes'researchontheinternet.HefellasleepduringaserviceinhonourofMartinLutherKingatachurchinHarlem(“Billhasadream”,quippedtheNewYorkPost).IsMrClintondamaginghiswife'spresidentialchancesaswellashisownreputation?Thisseemsunlikelyintheshort-termbattleagainstMrObama.Theformerpresidentisarmedwiththebiggestmegaphoneinthebusiness.Thiscouldproveparticularlyimportantinthebattleformega-statessuchasCaliforniaandNewYork,whereadvertisingisprohibitivelyexpensiveandfreepressismannafromheaven.TheClintons'double-barrelledattackhasputMrObamaonthedefensive—notapositionthatbringsoutthebestinhim.Ithasalsosucceededinitschiefaim:defininghimasablackcandidate,andaninexperiencedoneatthat.Butthelonger-termeffectcouldbemoreharmful.ThemoreMrsClintonreliesonherhusband,themoresheunderminesthemostcompellingargumentsforhercandidacy.Takethenotionthatsheisafeministpioneer.MrClinton'somnipresencenotonlyremindsusthathiswifemadeherpoliticalcareerbyattachingherselftohiscoat-tails.Onlyaspousecouldhavesurvivedthedebacleof“Hillarycare”.Italsoremindsvotersthatherfirstinstinctwhenthegoinggetstoughistoturntoherhusband.Ortakeherclaimthatshestandsfor“smartchange”or“realchange”orwhateverthelatestsloganis.ThiswasalwaysgoingtobeadifficultposeforMrsClintontomaintain.Butherhip-and-thighrelationshipwithherhusbandunderlineshertwobiggestweaknesses—herscandal-riddenpastintheWhiteHouse(rememberMarcRich?Orthefree-loadingRodhambrothers?)andthedynastificationofAmericanpolitics.Whenheretiredfromthepresidency,MrClintonleftthecustomarylettertohissuccessoralongsidetheletterMrBushseniorhadleftforhimeightyearsbefore.Doestheworld'sgreatestdemocracyreallywanttogiveMrBushachancetomakeasimilargesture?Anotherrollingdisaster?ThebiggestdamageistoMrsClinton'sclaimthatshewillbeaneffectivechiefexecutive.MrClinton'sfreneticroleinthecampaignsurelyprefigurestherolehewillplayintheWhiteHouse,advisinghere,meddlingthere,andusingtheaccesstotop-secretinformationthathispositionasanex-presidentaffordshimtosecond-guessthemostsensitivedecisions.WhowillholdMrClintonaccountableforhisactions?HowwilltheWhiteHousefunctionwithanex-presidentandavice-presidentvyingforinfluence?(Oneinsideroncetermedthe“three-headed”relationshipbetweentheClintonsandAlGorea“rollingdisaster”.)TheClintoniansliketodescribetheirbossesascomplementaryfigureswhoactas“forcemultipliers”.Butinthe1990swhatactuallygotmultipliedwasconfusion.AllthiswillbematerialfortheRepublicanattackmachine.BymostreckoningstheRepublicansshouldbedoomed.ButtheClintons'tacticsarealienatingblacksandyoungpeople.TheClintonsareintheprocessofdoingtheimpossible:makingthe2008electionareferendumonthem,ratherthanontheRepublicans.AndtheRepublicansareinchingtowardsnominatingtheironecandidate,MrMcCain,whohasbroadpopularappeal.IfwhatoughttobeastrollintheparkinNovemberbecomesarealfight,thentheDemocratswillknowwhotoblame.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nCanadaTheautomatongoesonandonJan24th2008|OTTAWAFromTheEconomistprinteditionReutersIntwoyearsinofficeStephenHarperhasearnedrespectbutnotlove.YetCanadiansshownosignoftiringofbloodlesspoliticsGetarticlebackgroundMINORITYgovernmentsseldomlastlonginCanada.SowhenStephenHarperledhisConservativepartytooffice,butwithoutaparliamentarymajority,inafederalelectioninJanuary2006,punditsconfidentlypredictedhewouldsoonseekabiggermandatefromthevoters.Fivefairlystraightforwardcampaignpromisesweretickedoffquickly.Buttheexpectedelectioncallnevercame.InsteadMrHarperpushedthroughalawfixingparliamentaryterms.Unlesstheoppositiongangsuptobringhimdown,orunlessheengineersthatoutcomehimself,hisgovernmentwillsoldieronuntilOctober2009—aspanexceededonlyoncebeforebyaminorityadministration.Thatispartlytestamenttothedisarrayofadividedopposition.TheLiberals,itsmainelement,wereleaderlessformuchof2006beforepickingStéphaneDion,amild-manneredpolicywonk,whohasmadeaslowstart.ButMrHarperhasbeenunabletodomuchmorethansurvive.Respectedforhiscompetence,hehasallthecharismaofanautomaton.“IthoughtthatpeopleneededtimetogetusedtoMrHarper,”saysRogerGibbinsoftheCanadaWestFoundation,anAlberta-basedthink-tank.“Butit'sturnedoutthattoknowHarperisnottolovehim.”Thatisespeciallytrueforwomen.Opinionpollsshowlittlechangeinallegiancesincethelastelection—exceptforabriefmomentofConservativeadvancelastautumn(seechart).MrHarpermaycometoregretnotforcinganelectionthen.Forthegoingisgettingtougher.HispartyhasnotbeenhelpedbytherakingupofascandalinvolvingpaymentsinbrownenvelopesbyanarmslobbyisttoBrianMulroney,aformerConservativeprimeminister,inthe1990s.Theseclaimswererevivedbecausethelobbyist,KarlheinzSchreiber,isfightingextraditiontoGermany,wherehefacesbriberyandfraudcharges.Althoughataintedwitness,heflungenoughmudatMrMulroneyduringhearingsbyaparliamentarycommitteebeforeChristmasthatsomeofitstuck.MrHarperfeltobligedtopromiseapublicinquiryoncethecommitteehasfinisheditshearings.\nThentherearetheproblemsofCanada'sageingnuclearindustry.ThesewerehighlightedinNovemberwhenLindaKeen,theheadofthenuclear-safetyregulator,refusedtoallowtheChalkRiverreactor,oneoftheworld'smainsuppliersofmedicalisotopes,torestartafterroutinemaintenancebecauseofthefailuretoinstallaback-uppowersystem.Withcustomersfearingashortageofisotopes,parliamentpassedemergencylegislationorderingthereactortorestartwithouttheback-upsystem.ThegovernmentthenoustedMsKeenfromherpost,damagingpublicconfidenceintheindustry.TrickierstillisAfghanistan,where77Canadiantroopsandadiplomathavediedsince2002.Canada'smilitarymissionthere—ithassome2,500troopsinKandaharinthesouth,whereinsurgentsareactive—isunpopular,buthasbeenstronglysupportedbyMrHarper.Todefusecriticism,heappointedanon-partisancommitteeunderJohnManley,aLiberalformerforeignminister,toconsiderthemission'sfuture.OnJanuary22ndthecommitteerecommendedthatitcontinue—butonlyifreinforcedby1,000extratroopsfromanotherNATOcountryaswellasbymoreaircraft.UnlessMrHarpersecuressuchsupportattheNATOsummitinBucharestinApril,hecouldfacedefeatontheissueintheHouseofCommons.Bythentheeconomymayhavebecomehisbiggestproblem.Yearsofstronggrowth,fuelledbyhighpricesforcommodityexports,riskbeingcurtailedbytheloomingrecessionintheUnitedStates,whichtakesfour-fifthsofCanada'sexports.ThemorepessimisticamongeconomistsreckonthatCanada'sfiscalandcurrent-accountsurplusescoulddisappear.TheBankofCanadatrimmeditsbenchmarklendingrateby25basispointsto4%onJanuary22ndandhintedatfurthercuts.Nobodyispanickingyet.ButslowergrowthwillredoublecallsfromthepremiersofOntarioandQuebecforfederalhelpformanufacturing,whichhassufferedfromthestrengthoftheCanadiandollar.MrHarperthismonthannouncedC$1billion($990m)inaid,mainlyforone-industrytownswhereplantsclose.MoreschemeslikethatmightwinhimtheextraseatsincentralCanadathatheneedsforaparliamentarymajority.Buthewillhavelessmoneytoplaywithinthebudget,dueinlateFebruaryorearlyMarch,andhehasalreadypledgedtaxcuts.ThisyearisshapinguptobeMrHarper'smostdifficultsofar.Butthereisnotyetanysignthattheoppositionwillfeelsufficientlyemboldenedtobringhimdownandtriggeranelection.Itsleaderswillbestudyingtheopinionpollsascloselyastheprimeminister.Theseshowthat“Canadiansareprettysatisfiedwiththewaytheworldisgoing,”saysDarrellBrickerofIpsos-Reid,apollingcompany.Toosatisfied,itseems,towanttokickthegovernmentout.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nMexicoandNAFTATariffsandtortillasJan24th2008|MEXICOCITYFromTheEconomistprinteditionTradeisnottoblameforthepovertyofMexicanfarmersITWASinavalleysomewhereincentralMexicoatleast5,000yearsagothatmaize(corn,toAmericans)wasfirstdomesticated.ManyMexicansseethecropaspartoftheirnationalpatrimony,muchaspotatoesaretoPeruviansorpastaistoItalians.SoitisunderstandablethatwhenonJanuary1stimporttariffsonmaize(alongwithbeans,sugarandmilk)werefinallyeliminated,manyMexicansfeltatwingeofregret.Theendofthetariffsmarkedtheculminationofa14-yeartransitiontofreetradebetweenMexico,theUnitedStatesandCanadaundertheNorthAmericanFree-TradeAgreement(NAFTA).FewAmericanshavewarmedtoNAFTA—HillaryClinton,whosehusbandBillfoughtforitsratificationwhenpresident,haspromisedtoreviewitifsheiselected.Butonlythemostardentanti-globalisationactivistswouldarguethatithasnotbroughtbenefitstoMexico(andthustoitsnorthernneighbour).Since1994Mexico'snon-oilexportshavegrownfourfold,whilethestockofforeigndirectinvestmenthasexpandedby14times.Eventhecountry'sfarmexportstoitsNAFTApartnershaverisenthreefold.NeverthelessmanyMexicansarenomoreenthusiasticaboutthetreatythanAmericansare.Oppositionpoliticians,fromboththecentre-leftPartyoftheDemocraticRevolutionandtheformerlyrulingInstitutionalRevolutionaryParty,arguethatNAFTAshouldbere-negotiated.PeasantfarmersaretostageademonstrationinMexicoCityonJanuary31sttowhichtheyhopetoattract100,000people(although,asiscustomary,manyofthesewillbebusedinandpaidtoattend).Inpractice,littlechangedonJanuary1st.Tariffsonmaizehavegraduallybeendroppingsince1994(whentheystoodatover200%).Nearlyallmaizeimportsalreadyenteredtariff-freeundergovernmentimportquotas.Mostoftheimportsareofyellowcorn,usedtofeedlivestock,whileMexicoproducesmainlywhitecorn.Evenso,withoutcheapimportsMexicanswouldpaymorefortheirdailytortillas.Theywereremindedofthatayearagowhenatemporaryshortfallinimportscombinedwithdistributionsnagstocausethepriceoftortillastosoar.Despitethelongtransitiontofreetrade,littlehasbeendonetopreparesmall-scalefarmers.Procampo,agovernmentprogrammemeanttoprovideaminimumincomeforeveryfarmer,washijackedyearsagobyagribusiness,withabigsliceofitsannualbudgetof$1.4billiongoingtolarge-scalefarmersinthenorth.Four-fifthsoffarmershavefewerthanfivehectares(12acres),accordingtotheministryofagriculture.Mostaresubsistencefarmerswhorelyonmaize—a“recipeforpoverty”,accordingtoLuisdelaCalle,whowasoneofMexico'sNAFTAnegotiators.Theministryestimatesthatonly6%offarmsare“highlyefficientandprofitable”.Nevertheless,theMexicanmaizecrophasgrownfrom18mtonnesbeforeNAFTAto24mtonneslastyear.This,saysJaimeSerraPuche,thetradeministerwhenNAFTAwasnegotiated,isaproblemratherthanasuccess.Growingmaizeefficientlyrequireslotsofwater,largefieldsandmechanisation—inotherwords,IowaorSaskatchewanratherthanOaxaca.SubsidieshavecausedMexicanfarmerstosticktomaizeinsteadofswitchingtomoreprofitableandlabour-intensivecrops,suchasfruitandvegetables,MrSerraargues.AlbertoCárdenas,theministerofagriculture,saysheistryingtostreamlineandsimplifythesubsidysystem,anddirectmoreofthemoneytopoorerfarmers.Othersarescepticalthatthisishappening.AdvocatesforsubsistencefarmersclaimthatGrupoMaseca,abigtortillamaker,controls85%ofthemarketformaizeflour.“Wearenotagainstmarkets,weareagainstmonopolies,”saysVictorSuárez,oneoftheorganisersoftheprotest.MrCárdenassaysthatthemaizemarketiscompetitive,butotherofficialsexpressworriesaboutmarketconcentration.Fortunatelyforthegovernment,thetariffshavebeenremovedwhilepricesareatrecordlevels.Withmaizeat$5abushel,thankstoa(subsidised)boominitsusetomakeethanolintheUnitedStates,\neventheleastefficientsubsistencefarmercanmakemoney.OpenmarketsbenefitthemillionsofpoorMexicanswhoarenotfarmersbutconsumelotsofmaize.Butfewofthemseemtorealisethis.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nBrazilWolfpackJan24th2008|SÃOPAULOFromTheEconomistprinteditionThesurvivalofpatronagepoliticsReutersPOLITICSinBrazil,likeanywhereelse,ismostlyaboutclaimingcreditforimprovements,dodgingtheblamefordisastersandoccasionallysolvingproblems.Butsometimesitjustseemsliketheeasiestroutetosocialadvancement.ThecareerofSenatorEdisonLobão,picturedwithPresidentLuizInácioLuladaSilvawhonamedhimministerforenergyandminingonJanuary21st,isacaseinpoint.Thejobisanimportantone.Brazilfacesroughlyaone-in-fivechanceofblack-outsoverthenexttwoyears,reckonsMarioPereiraofPSR,anenergyconsultancy.Theoddsturnlargelyonwhetherenoughrainfallsoverthenextthreemonthsinthesouth-eastofthecountrytofillthereservoirsthatfeedthehydroplantsthatprovidemuchofBrazil'spower.Ifnot,thegovernmentwillhavetoimposerationing.EnterSenatorLobão.Hislackofenergyexpertiseneednotbeaproblem(hehasreassuredthepublicthathehasbeenreadingaboutthesubject).Norisithisfaultthathissurnamemeans“bigwolf”—afterall,hisChristiannameistailor-madeforthejob.MoretroublingishisCV,whichisnotoneofsteadfastpublicservice.Beforebecomingapolitician,MrLobãowasajournalist.HewrotesuchnicethingsaboutthegeneralsthatruledBrazilfrom1964-85thattheymadehimacongressmanintheirtamepoliticalparty.Plentyofotherpeopleworkedwiththedictators.ButMrLobãohasotherblotsonhisrecord.Hechosehisson(inevitablydubbed“littlewolf”bythepress)ashisalternate.Heshouldnowinheritdaddy'sseat—butheisbeinginvestigatedfortaxevasion.HowcansomeonelikeMrLobãogetsuchanimportantjob?BecauseheisaprotégéofSenatorJoséSarney,aformerpresidentwhoisabossofthePartyoftheBrazilianDemocraticMovement,aragbagoutfitthatPresidentLulaneedsforhismajorityinCongress.MrSarney'sinfluencestemsfromthegripthatheandhisfamilyhaveexercisedonthepoor,north-easternstateofMaranhãofordecades.OEstadodeSãoPaulo,anewspaper,recentlynotedthatinMaranhãoitispossibletobeborn,caredfor,educated,housedandentertainedentirelyinpublicinstitutionsnamedaftermembersoftheSarneyclan.MrSarneywasgovernorofMaranhãounderthedictatorship.Hisdaughter,Roseana,wastwiceelectedtothesamepost.FatheranddaughternowsittogetherintheSenate.ThefamilycontrolsOEstadodoMaranhão,alocalnewspaper,and,moreimportantly,themaintelevisionandradiostationsinthestate.SuchfeudalpoliticaldynastiesarelesscommonthantheyoncewereinBrazil.In2006anotherlegendarypoliticalboss,thelateAntonioCarlosMagalhães,whodominatedthepoliticsofBahiaforhalfacentury,sawhisnomineelosethestate'sgovernorship.HisdefeatowedmuchtoBolsaFamília,aprogrammeofcashtransferstopoorfamiliesfromthefederalgovernmentwhichMrMagalhaeswasunabletocontrol.ButtheoldwayspersistinplaceslikeMaranhão.PatronagepoliticsisaheavyburdenforBrazil'staxpayers.Ifthelightsgooutnextyear,thecostcouldgetevenheavier.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nArgentinaStopalltheclocksJan24th2008|BUENOSAIRESFromTheEconomistprinteditionOnPatagoniantimeNOFARTHERfromtheequatorthanareLosAngelesorBeirut,BuenosAiresishardlyknownasalandofmidnightsun.Butat10pminthesouthernhemispheresummer,itisstillnotdarkinArgentina'scapital.Forthiseerieillumination,porteñoscanthankCristinaFernándezdeKirchner,thecountry'snewpresident.ShedecreedthattheclocksshouldgoforwardbyanhouronDecember30thforelevenweeksinadesperateattempttoallayenergyshortages.ItsgeographicalpositionsuggeststhatmostofArgentinashouldbefourhoursbehindGreenwichMeanTime.Butithasbeenonlythreehoursbehindformostoftheperiodsince1969,whenamilitarygovernmentmadesummertimelastthewholeyear.Nowitisjusttwohoursbehind,untilmid-March.Theshiftisintendedtoforestallfurtherelectricityblackouts—abigpowercutleftmuchofBuenosAiresinthedarkearlierthismonth.Thecauseoftheenergyshortageissimple:fouryearsofpricecontrolsunderMsFernández'shusband,whoprecededherinthepresidency,haveleftaverageenergycostsathirdbelowthoseofneighbouringcountries,boostingdemandanddiscouraginginvestmentinsupply.ThenewtimehasprovokedgrumblesinwesternArgentina,whereitremainsdarkat7amandclocksnowrunthreehoursaheadofBoston,onasimilarlongitude.“Everyone'scomplainingaboutit,”saysMauricioLlaver,ajournalistinMendoza.“Youneverfallasleepbefore1am,andthenyouwakeupexhaustedinthemorning,andit'sstilldarkoutside.Oneofthepleasuresofsummerusedtobewakinguptothesongbirds.Notanymore.”Thereissimilargrumblingaboutnewly-darkmorningsinPatagoniainthesouth,MsFernández'sadoptedhomeregion.Theearlysignsarethattheswitchmaynotsaveenergy.MsFernándezisnotaloneinfiddlingwithtime.HugoChávez,Venezuela'spopulistpresidentwithwhomsheisfriendly,decreedlastmonththathiscountry'sclocksshouldgobackbyhalfanhourpermanently.Thechange,aimedatensuringchildrengotoschoolindaylight,“affectseventhebiologicalfunctioningofthebody,”saidMrChávez.Maybe,buttheresultisthatCaracasisnowtwoandahalfhoursbehindMendoza,whichisfurtherwest.It'senoughtomakethecondorsdropoutoftheskyinconfusion.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nEnvironmentalprotectioninChinaDon'tdrinkthewateranddon'tbreathetheairJan24th2008|BEIJINGFromTheEconomistprinteditionAFPAnddon'texpectthegovernment'senvironmentalwatchdogtodomuchaboutitTHESEdaysChina'senvironmentalbureaucratsknowhowtotalkthetalk.Theyreadilyadmitthatpollutionispoisoningthecountry'swaterresources,airandsoil.Theyacknowledgethatcarbonemissionsaresoaring.Ifonly,theylament,thegovernmentwouldgivethemthemeanstodosomethingaboutit.Forallitsgreenpromisesinrecentyears,theCommunistPartyhasdonelittletobuildabureaucracywiththeclouttoenforceenvironmentaledictsandmonitorpollutioneffectively.Aslongastheydelivereconomicgrowthwithouttoomuchpublicprotest,officialscanstillexpectpromotion,howeverpollutedtheirareas.Optimistsseechangesafoot.TheStateEnvironmentalProtectionAdministration(SEPA),thegovernment'slargelytoothlesswatchdog,couldsoonberenamedandupgradedtoaministry.Someobserversexpecttherubber-stamplegislature,theNationalPeople'sCongress,toendorsethechangeatitsannualsessioninMarch.InanarticlelastyeartwoscholarsarguedthatifSEPAwereaministryitmightholditsownbetterinbureaucraticturfwarsinwhichitisatpresent“marginalised”.SEPA'sweaknesswasevidentlastyearduringoneofthecountry'sbiggestrecentenvironmentaldisasters,thechokingofthecountry'sthird-largestfreshwaterlake,Taihu,bytoxicalgae.Thecontaminantsincludedemissionsfromsmallfactoriesandcrabfarmsalongtheshore.SEPAofficialssaytheycoulddolittle:thecrabfarmsfallundertheMinistryofAgriculture,waste-watertreatmentplantsunderlocalgovernmentsandthelakeitselfundertheMinistryofWaterResources.SEPAissoweakthatitsofficialsadmitithaslittlegraspoftheimpactofagricultureonwaterandsoilpollution.TheMinistryofAgriculturehasdiscourageditfromgatheringdataeventhough,asoneSEPAofficialseesit,Chineseagriculturepollutesasmuchasitsindustries.Thecountry'sfirstnationalcensusofpollutionsourcesisduetobegininFebruary.Theministryistakingpartinthetwo-montheffort.But,famouslysecretiveandprotectiveofitsbureaucraticterritory,itislikelytodragitsfeet.HealthofficialswouldsympathisewithSEPA.Theireffortstopersuadetheagricultureministrytoco-operateoverlivestock-relatedthreatstopublichealth,suchasbirdflu,haveencounteredstubbornresistance.Andhealthalreadyhasafull-fledgedministry.Toimpressitsbureaucraticrivals,SEPAalsoneedsabiggerbudget.Officialshavesaidthatbetween\n2006and2010Chinawillspend1.3trillionyuan($180billion)onenvironmentalprotection,anincreaseofmorethan85%overthepreviousfiveyears.Butmuchofthisisexpectedtobegiventootheragencies(theStateForestryAdministration,forexample,dealswithstemmingthespreadofdeserts)ortothelocalenvironmental-protectionbureaus,which,beinganswerabletolocalgovernments,arecrippledbyconflictsofinterest.Littleofthemoney,complainsaSEPAofficial,isusedtocurbpollution.SEPAitselfissostrappedthattofinanceoneofitsrecenthigh-profileprojects,anefforttocalculateameasureof“greenGDP”(GDPminusthecostofenvironmentaldamage),itbeggedformoneyfromcompanies.Thegovernment,saysanofficial,gavenothing.Afterthreeyearsofeffort,includingstruggleswithahighlyscepticalNationalBureauofStatistics(NBS),theprojectwasabandonedlastyear.Itdidpublishonefigure:environmentaldamagein2004cost3.05%ofthatyear'sGDP.LastJulytheheadoftheNBSsaidthegovernmenthadstoppedusingtheterm“greenGDP”becauseitwasnotinternationallyaccepted.AshortageofmoneyhassimilarlyhobbledSEPA'slatesteffortstoencouragegreenercorporatebehaviour.Theseincludelastyear's“greencredit”policywherebystate-ownedbanksaresupposedtosuspendlendingtoegregiouspolluters(SEPAcirculatedalistof30suchcompaniesinJuly).Thereisalsoa“greentrade”initiative,announcedlastOctober,thatthreatenspollutingcompanieswithsuspensionoftheirexports.Alsobeingconsideredareenvironmentalrequirementsforcompaniesplanningtolisttheirsharespublicly,andataxonpolluters.Resistancefromlocalgovernmentsandpowerfulstate-ownedcompanieswillmakeithardtoimplementsuchmeasures.WhatitlacksinresourcesSEPAtriesvaliantlytoregainbyappealingtopublicsentiment.Itsdeputydirector,PanYue,isanoutspokengreencampaignerwhohappenstobeason-in-lawofafamousformergeneral,LiuHuaqing(suchconnectionscanbeabighelpinChinesepolitics).LastyearofficialsreportedlyaskedtheWorldBanktoremoveestimatesofpollution-relateddeathsinChinafromareportpublishedjointlywithSEPA.ButSEPA'swebsitestillshowsalittle-reportedspeechbyMrPanin2006inwhichhesaidcancerexpertsbelievedthat70%ofChina'smorethan2mannualdeathsfromthediseasewerepollution-related.TheWorldBankhadbeenplanningtoblamepollutionforjust750,000deathsfromvariouscauses.ChineseofficialswereworriedthattheWorldBank'sfigureswouldcauseunrest.Butenvironmentalawareness—andanger—ismountinganyway.Ofcomplaintssubmittedtogovernmentdepartments,13%relatetopollution,upfromfewerthan6%threeyearsago.AndSEPAofficialssaypollution-relateddisturbancesarealsobecomingmorecommon—51,000in2005andmorethan60,000in2006.SuchprotestsaremorelikelythanSEPA'seffortstogoadreluctantofficialsintoaction.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nThailand'sdrugwarsBackontheoffensiveJan24th2008|BANGKOKFromTheEconomistprinteditionThenewgovernmentisunlikelytoofferaceasefire.AnewcrackdownloomsNOPOLICYpushedbyThaksinShinawatra,theThaiprimeministertoppledinacoupin2006,provokedasmuchcontroversy—orwonasmanyvotes—asabloody2003campaignagainstillegaldrugs.Facedwithsoaringmethamphetamineabuse,MrThaksinorderedthepolicetodrawupblacklistsofsuspectedtraffickersand“toactdecisivelyandwithoutmercy”.Theresultwasashootingspreeinwhichover2,500peoplediedinthreemonths.Thepoliceblamedgangviolence;human-rightsgroupsaccusedthegovernmentofcondoningextra-judicialkillingsbythesecurityforces.Fiveyearson,MrThaksin'spoliticalalliesareheadingbackintopoweranddustingdowntheirget-toughmessage.ChalermYubamrung,deputyleaderofthePeople'sPowerParty,whichwillleadthenewgovernment,iswidelytippedtobethenewinteriorminister.Hehaspromisedanother“warondrugs”.ThiswouldincludemandatorytreatmentforaddictsaswellaseffortstostaunchtheflowofmethamphetaminefromjunglelaboratoriesinneighbouringMyanmar.Onthecampaigntrail,MrChalermbothdeniedtherewasanygovernmenthandinthepreviouscarnage,andclaimedthatno“innocentpeople”wereamongthevictims.Yetapanelsetuplastyearbytheoutgoingjuntarecentlyconcludedtheopposite:overhalfofthosekilledin2003hadnolinkstothedrugstrade.Thepanelblamedtheviolenceonagovernment“shoot-to-kill”policybasedonflawedblacklists.Butfarfromleadingtotheprosecutionsofthoseinvolved,itsfindingshavebeenburied.Theoutgoinginterimprimeminister,SurayudChulanont,tookofficevowingtorightMrThaksin'swrongs.Yetthisweekhesaidtherewasinsufficientevidencetotakelegalactionoverthekillings.Itiseasytoseewhythetidehasturned.SunaiPhasuk,aresearcherforHumanRightsWatch,alobbyinggroup,saysthatthepanel'soriginalreportnamedthepoliticianswhoeggedonthegunmen.ButafterthePPPwonlastmonth'selections,thosenameswereomitted.ItisadepressingreminderthatthelawinThailandcanseemattheserviceofitspoliticalmasters,ratherthantheotherwayaround.OnthestreetsofKhlongToey,thelargestsluminBangkok,thereisnostalgiaforMrThaksin'siron-fisteddrugspolicy.The2003crackdowndroveupprices,smashedtraffickingnetworksandforcedaddictsintorehabilitationprogrammes.Indrug-ravagedcommunities,wheretheendstendtojustifythemeans,thatwasenoughtoturnMrThaksinintoahero.Hisdownfall,andThailand'spoliticalcrisis,havesappedpoliceeffortstostopthetraffickers.WanlopHirikul,alocalactivist,saysthatwheretherewasonedealeronthestreet,nowtherearethree.Supplyisplentiful,andinKhlongToeymethamphetaminepricesarefalling.Drug-treatmentcentresreportrisingnumbersofaddicts.Youmightexpectamilitaryjuntawithsweepingpowerstohavekeptupthefightagainstsuchillicitactivity.Anti-narcoticsofficialssaythatdrugseizureshaverisensincethemilitarycoupinSeptember2006.Yetthatprobablymeansevenmoreofthestuffwentunseized.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nMalaysiaIndianmutinyJan24th2008|KUALALUMPURFromTheEconomistprinteditionAhithertoquiescentminoritylosesfaithinthesocialcontractAPSOMEdevoteeshadbeenfastingforweeksandshavedtheirheads.Themostzealouspiercedtheircheekswithskewersorattachedlargewoodeniconstotheirbodieswithdozensofflesh-piercinghooks.OnJanuary23rdtensofthousandsofethnic-IndianMalaysiansgatheredattheBatuCavestempleoutsideKualaLumpurtocelebrateThaipusam,oneofHinduism'sbiggestfestivals.Inpastyearsmorethanamillionhaveturnedout.Thisyear,althoughministersandpro-governmentnewspapersdeniedit,thecrowdwasmuchthinner.ManyMalaysianIndiansseemedtohaveansweredacallforaboycott,amidrisingangeratthewaytheirminority—around8%ofthecountry'spopulation—istreatedbythegovernment.Threedaysearliertheprimeminister,AbdullahBadawi,hadsoughttoappeaseHinduangerbypromisingthatThaipusamwouldhenceforthbeapublicholidayinthecapitaloftheMuslim-majoritycountry.Heannouncedthisatagatheringofaround15,000MalaysianIndians,hopingtoshowthathestillretainstheirsupport,despitetheemergenceinthepastyearofaradicalprotestgroupcalledtheHinduRightsActionForce,orHindraf.AminoritysharesitspainLastNovemberIndiansgatheringattheBatuCavesontheeveofaHindrafstreetmarchweretrappedwhenthetemple'smanagers—saidtobelinkedtotheMalaysianIndianCongress(MIC),partofMrBadawi'srulingcoalition—lockedthegatesandcalledthepolice.Inthedisorderthatfollowed,manywerearrested.Evenso,thenextmorningatleast10,000tookpartintheHindrafmarch,whichthepolicebrokeupwithtear-gasandbatoncharges.Inthe50yearsofpeninsularMalaysia'sindependencefromBritain,theethnicIndianshavebeenmorequiescentthanthericher,bettereducatedandmoreassertiveethnicChinese,whomakeupaboutone-quarterofthepopulation.Underanimplicit“socialcontract”,thetwominorities,mostlydescendedfrommigrantworkers,weregivencitizenshipinreturnforacceptingthatethnicMalaysandotherindigenousgroups,togetherknownasbumiputras(sonsofthesoil),wouldenjoyprivilegedaccesstostatejobsandeducation.Alltheraceshavedonewellfromstrongeconomicgrowthsinceindependence.TheIndiansandChinesesufferevenlowerpovertyratesthanthebumiputras.Butwhereasthemajoritypopulationhave,withofficialhelp,startedcatchingupwiththeChineseinthepropertyandsharestheyown,theIndiansstillhavefewassets(seechart).Oftentheyarestuckinrentedhomesandlow-skilledurbanjobs.TheIndians'senseofmissingoutonthegoodlifehashelpedtofeedtheirmoodofgrievance.Butwhathasmostfuelledtheirangerinthepastfewyearsisafeelingthat“creepingIslamisation”threatenstheirreligiousfreedom.TheissuethattriggeredHindraf'sformation,accordingtoN.Surendran,oneofthegroup'sleaders,wasthedemolitionofanumberof“unauthorised”Hindutemplesbylocalgovernments,oftenbystateworkerswhowereMalaysandthusMuslims.ThebigrallyinNovembercameafewweeksafteratempleinShahAlam,westofthecapital,wasdemolishedjustbeforeDivali,anotherimportantHindufestival,despitethetemplecommittee'spleastodelayitsdestructionforafewmoredays.Manyofthethreatenedtempleswereconstructedbymigrantworkersincolonialtimes,withoutformalpermission,onplantationsorbyroadsandrailwaysbuiltbythemigrants.Nowthislandisbeing\nredeveloped.Hencethedrivetodemolishthem,saysA.VaithilingamoftheMalaysiaHinduSangam,themainassociationoftemples.Theauthoritiescouldtryhardertoresolvedisputes,hesays,buttheyaretooanxioustopleaserichdevelopers.Theheavy-handedresponsetoHindraf'sprotestshasservedtomakethingsworse.FiveHindrafleadershavebeendetainedwithouttrialunderacolonial-erasecuritylaw,andweresaidthisweektohavegoneonhungerstrike.Hindrafdeniesthegovernment'schargethatithaslinkstoSriLanka'srebels,theLiberationTigersofTamilEelam.Withanelectionexpectedshortly,MrBadawihassoughttosootheethnicIndiananger.BesidesdeclaringThaipusamaholidayhehaspromisedacabinetcommitteetolookintopovertyamongallraces.ButhemayalsocalculatethattheunnecessarilyharshtreatmentofHindrafwillwinhispartyvotesamonghardlineMalays.Ifso,heriskshelpingtheextremistsoneachsidepeddlethedangerousmyththatthereisazero-sumgamebetweentheraces—andthatthewaytowinitistotaketothestreets.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nWhalingSaltyshepherdsJan24th2008|SYDNEYFromTheEconomistprinteditionArowbetweenAustraliaandJapanTHESouthernOceanisusuallyoneoftheworld'sloneliestshippinglanes.ThismonthithasturnedintoanunseemlybattlegroundoverabidbyAustralia'sgovernmentandvariousenvironmentalgroupstostopJapanhuntingandslaughteringwhales.Japanaimstokillmorethan900minkeand50finwhalesfromaregionborderingAntarcticabymid-April.Itclaimsthehuntisforscientificresearch;itscriticssaythisisabrazenfrontforacommercialwhale-meatharvest.Asimagesoftheprotesters'anticsinflameanti-JapanesefeelinginAustralia,theclashisalsothreateningthestabilityofoneofAustralia'sstrongestregionalties.OnJanuary22ndGreenpeace,anenvironmental-lobbyinggroup,wedgedasmallinflatablecraftbetweentheNisshinMaru,theJapanesefleet'sfactoryship,anditsrefuellingvessel.Itmanagedtodelay,butnotstop,theoperation.ThiswasaminorepisodecomparedwithamanoeuvreaweekearlierbytheSeaShepherdConservationSociety,ananti-whalingbody.TwoprotestersboardedoneoftheJapanesewhalingvesselstodeliveraletterdemandingthattheharpooningstopand,saytheJapanese,splashedacidabout.TheyweredetainedontheJapaneseship,grabbingheadlinesworldwide,untilanAustralianpatrolboatreturnedthemtotheirownshipthreedayslater.Moreprotestsseemlikely.PaulWatson,captainoftheSeaShepherdshiptrackingthewhalers,saysheispreparedtokeepupthechaseforweeks.HepaintedGreenpeaceastimidforitsfailuretopreventrefuelling:“Ofcourseit'sdangerous.Stoppingthewhalingfleetisnotagame.”JapanesefleetshavebeenhuntingwhalesintheSouthernOceanforseveralyears.Nonehashadtodealwithconfrontationslikethoseseenthisseason.KevinRudd,Australia'snewprimeminister,calledforanendtothewhaling.AnAustralianaircraftiskeepinganeyeontheoperation.AtleastsomeofthewhalingishappeninginwatersoffasectionofAntarcticaoverwhichAustraliaclaimssovereignty.EightyearsagoAustraliadeclaredawhalesanctuaryinitsAntarcticwaters.HumaneSocietyInternational,anotherenvironmentalgroup,wonarulingfromtheFederalCourtinAustraliaonJanuary15ththatwhalinginthesanctuarywasillegalandshouldstop.ThecourtreportedJapanesefiguresshowingJapanhadkilledmorethan3,300minkewhalesand13finwhalesinAntarcticwaters(notconfinedtoAustralia'szone)since2000.MrRudd'sgovernmenthasreactedcautiouslytotheruling.OnlyFrance,NewZealand,NorwayandBritainrecogniseAustralia'sAntarcticclaim.Foritspart,JapanregardstheAustraliansanctuaryasinternationalwaters.Commercialwhalingwasbannedworldwide22yearsago.Butkillingfor“scientific”researchisstillallowedundera1946convention.Japan'scriticsquestionwhetherresearchrequiressomanywhalestobekilled.JapaneseofficialsalsoaccuseAustraliaofhypocrisy:takingthehighgroundoverwhaleswhileitkillsthousandsofkangaroosincontrolledculls.MinoruMorimoto,Japan'scommissionertotheInternationalWhalingCommission,says:“Thereareenoughwhalesforthosewhowanttowatchthemandthosewhowanttoeatthem.”DerekLuxford,aSydneyshippinglawyer,reckonsAustraliashouldresolvetheimpassebytestingitsanti-whalinglawbeforetheInternationalTribunalfortheLawoftheSea.Thealternative,hesays,istoallow“vigilante”groupslikeSeaShepherdtoenforceitslaw.Hemayberight.ThedisputeissouringtheairasAustraliaembarksontalkswithJapanaboutafree-tradeagreement.AnditcomplicatestheRuddgovernment'sbidtobalanceJapanagainstChina'sgrowingimportanceforAustralia.MrRudd,aMandarin-speakingChinaexpert,opposedasecuritypactthatAustralia'sformergovernmentsignedwithJapanlastyear.JapanwillbelookingforsignsthatAustralia'sconcernforthefutureofthewhaleisnotpartofsomewideragenda.\nCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nTourisminNepalFromtrekstosexJan24th2008|KATHMANDUFromTheEconomistprinteditionIsanewsortofthrill-seekerheadingforNepal?Getarticlebackground“ICANonlydancewhenI'mdrunk,”confidesSrijana,a20-year-oldemployeeofthePussyCatBarandShower,ataverninThamel,Kathmandu'smaintouristhangout.Afewslurpsfromacustomer'sglasslaterandshemountsasmallstage.There,towhoopsfromafewtipsylocals,sheshedsmostofherclothesandgyratestoaHindipoptune.DanglingaboveheristheDamocleanswordincludedinthebar'sname:asilvershowernozzle,positionedtosprayflesh-revealingwateronadancerbelow.SuchgimmicksarecommoninThamel'sbars,wherecompetitionforlasciviousmalesisfierce.UntilafewyearsagoNepalhadnoobvioussexindustry.Therearenowanestimated200massageparloursand35“dancebars”,suchasthePussyCat,inThamelalone—withover1,000girlsandwomenworkinginthem.Manysellsex.InthePussyCat,anotherdanceradmitstoturningtricks,for1,800rupees($28).ThatisatidysuminNepal,SouthAsia'spoorestcountry.ItismuchmorethanNepaliwomenarepaidinIndia'sflesh-pots—towhichover5,000aretraffickedeachyear,accordingtotheUN.ButthedancersinThamelarechasingarichersortofIndian:tourists.Andtheirgovernmentseemstobeencouragingthem.Inanadvertisementfor“WildStagWeekends”,theNepalTourismBoardoffersthisadvice:“Don'tforgettohaveadrinkatoneofthelocaldancebars,wherebeautifulNepalibelleswilldancecirclesaroundyourpals.”Inacountrywitharichtraditionofdance,wherepayingforsexisillegal,thismightbeharmlessinnuendo.Butnoteverybodythinksso.Duringtherecently-endedcivilwar,Nepal'sHimalayantourismindustrycollapsed.Someactiviststhinkthatsextourismisreplacingit.AccordingtoJohnFrederick,anexpertonSouthAsia'ssextrade,“TenyearsagothesexindustrywasundergroundinNepal.Nowit'slikeBangkok,it'slikePhnomPenh.”Thewar,whichputmuchofruralNepalunderthecontrolofMaoistinsurgents,hasincreasedthesupplyofsexworkers.SrijanaisfromthepoorandstillviolentdistrictofSirahainsouthernNepal.Shewaswidowedtheretwoyearsago,andleftaninfantsontocometothecapital.Yetsheisremarkablycheerful—perhapsbecausesheisdrunk,andtheshowerisnotworking.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nAfghanistanPaddyre-enlistsJan24th2008FromTheEconomistprinteditionAlotforonemantodoITIShardtooverstatethehopesbeingvestedinPaddyAshdown.TheformerBritishmarine,politicianandinternationalproconsulinBosniaisonthepointofbeingappointedasthenewUnitedNationsrepresentativeinAfghanistan,chargedwithsteadyingnervesandgivingdirectiontotheWest'sfalteringstabilisationeffort.TheTalibaninsurgencyhasspreadfromthewildfrontierregiontoengulfmuchofAfghanistan'ssouthernPushtunbelt,withsomeexceptions,aswellaspartsofPakistan.ThetraditionalwinterlullinfightingdidnotstopaTalibansuicidesquadfrombrazenlyblastingandshootingitswayintoKabul'sposhesthotelonJanuary14th,killingeightstaffandguests.ThereisgeneralconsensusamongWesterndiplomatsandsoldiersthat,badasitis,Afghanistancouldgetalotworse.TiredofdemandingthatitsEuropeanalliessendmoremenandequipmenttoAfghanistan,Americahasdecidedtoreinforceitscontingent,announcingplanstodeploy3,200moremarinesinApril.RobertGates,thedefencesecretary,alsoupsettheEuropeansbysuggestingtheyhadyettomastercounter-insurgencytactics.TheprobleminAfghanistan,however,ismoreseriousthanjustashortageoftroops.Manyofthe39alliesareconductingtheirownmini-campaigns,frequentlyindisjointedsix-monthburstsasfreshunitsarerotatedthrougharegion.Theyarealsopursuingdifferentaidpolicies.America,Britain,Canada,PolandandtheNetherlandsareamongthosewagingthefightinthesouth,whilemanyotherswanttostayoutofit.Americachannelsitsaidthroughprivatecontractorsinthenameofavoidingcorruption,butBritaingivesthebulkofitsaiddirectlytothegovernmenttoencourage“capacitybuilding”.ArecentreportbytheEuropeanCouncilonForeignRelations,athink-tank,castigatedmembersoftheEuropeanUnioninscathingterms:“EUcountrieshavetreatedthecommoneffortinAfghanistanlikeapot-luckdinnerwhereeveryguestisfreetobringhisowndish.”Inotherpost-conflictrebuildingefforts,theUNhasbeengivenprimacy.ButinAfghanistanitadoptedalowprofileassovereigntywashandedovertoanAfghangovernmentledbyPresidentHamidKarzai.Assecurityhasworsened,theUNandaidcharitieshavefoundthemselvesunabletoworkinmanyprovinces.ForyearscommandershavelookedwistfullyatBosnia,thinkingthata“PaddyAshdownfigure”isjustwhatAfghanistanneeds.Now,itseems,theywillgetthegenuinearticle.LordAshdownhasgivenwarningthat“wearelosinginAfghanistan”andthatdefeatherewouldbeworsethaninIraq.Butcanheturnthingsaround?Hisappointmentisstillundernegotiation,butitisclearhewillnothavethepowersheenjoyedinBosnia,wherehecouldsacklocalofficialsandrescindlaws.Oncurrentplans,LordAshdownwillreplaceaGermanpolitician,TomKoenigs,asUNenvoy.Hewillnotbe,asoncemooted,a“triple-hatted”super-envoywhowouldalsorepresenttheEUandtheciviliansideofNATO.Still,thejobthatneedstobedoneisasmuchamatterofpersonaldynamismasofformalauthority.NATOcommanderssaytheywantpoliticaldirection.Asaformermemberofthespecialforces,whotookpartinasuccessfulcounter-insurgencycampaigninBorneointhe1960s,LordAshdownshouldhavelittledifficultyinstraight-talkingwithmilitarycommanders.MrKarzaihasoftencomplainedthathegetstoomuchcontradictoryadvicefromhisWesternbackers.ButheisbalkingattheprospectofapowerfulnewfigurearrivinginKabul,notleastbecausemanywouldlikeLordAshdowntofocusonreducingthegovernment'scorruptionandinefficiency,inacountrywhereopiumaccountsforaboutone-thirdofGDP.\nMrKarzaihasdemandedclarificationofLordAshdown'smandate.“Wewillnotbedictatedtobyanyone,”sayshisspokesman.AnothertrickymatterhasbeenAmerica.Itprovidesmostoftheforeignsoldiers,trainingforAfghanforcesandaid.Itmaynotwant“co-ordination”byaBriton.Fornow,though,itseemstoacceptthatthealternativeisfailure.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nTheGazaStripBustingtheblockadeJan24th2008|JERUSALEMFromTheEconomistprinteditionAPIsrael'sattemptstosqueezetheGazaStriparehavingunintendedconsequencesUNDERthepressureofIsraelisanctions,Gazathisweekblewagasket.OnJanuary23rdPalestinianmilitantsblastedholesinthemetalwallalongthesealedGaza-Egyptborder.Abulldozerbroadenedthegaps.TensorevenhundredsofthousandsofPalestinianspouredthroughtobuyfuel,food,sparepartsandothersupplies.Egypt'spresident,HosniMubarak,wasannoyedbutorderedhistroopstoletthemin,sayingtheywere“starvingduetoanIsraelisiege”.OnthePalestinianside,armedmenfromHamas,themilitantIslamicgroupthatcontrolsGaza,checkedthereturningshoppersforcontrabandandweapons.TheshortagesinGazahavegrowngraduallyworsesinceIsrael,havingdeclaredGazaa“hostileentity”,beganrestrictingimportsthreemonthsagoinresponsetoacontinuedrainofQassamrocketsontonearbyIsraelitowns.DespiterepeatedwarningsfromIsraelihuman-rightsgroupsthatdieselforthestrip'sonlypowerstationwasrunningout,IsraelclosedthebordercrossingsaltogetheronJanuary17th,afterariseinthenumbersofQassams.Threedayslaterthepowerplant,whichsuppliesaround30%ofGaza'swinter-timeelectricityneeds—therestcomingfromIsraelandEgypt—shutdown,leavinglargepartsofthestripwithoutlight,heatorrunningwater.IsraelatfirstaccusedHamasofexacerbatingthecrisisforpoliticalends,thoughforeignaid-workersintheterritorysayHamasdoesnotinterferewiththepowerstation.Israelrestoredsuppliesthenextday,butsaiditwouldkeepthemtothebareminimumneededtopreventashutdown.OfficialssavedfacebyclaimingthatGazahad“gotthemessage”:and,indeed,theQassamfirediddiminishsharply.Hamas,whichanIsraelinewspaperreportedhadplannedtheborderbreachmonthsinadvancewithanothermilitantgroup,willprobablyco-operatetoresealtheborder.ItcannotaffordtoangerEgypt,itsonlymediatorwiththeWest.ButthesqueezeonGazahasledtowhatIsraelwantedtoavoid:co-operationbetweenHamasanditsrivalparty,Fatah.ThoughFatahstillhatesHamasforoustingitfromGazainJune,theinterimPalestinianAuthoritygovernmentintheWestBankappointedbyMahmoudAbbas,thePalestinianpresidentandheadofFatah,hasbecomeincreasinglyanxioustoendtheblockade.Itproposesputtingnon-partisanforcesinchargeoftheGazabordercrossings,toovercomeIsrael'srefusaltoopenitssideofthecrossingssolongastheothersideiscontrolledbyHamas.Hamasleadersthisweeksupportedtheidea,andforeigncountriesincludingAmerica,Israel'sstrongestally,seemkeentoo.Suchachange,Israelfears,couldrelievethepressureonHamas.Notthatthepressurewasworkingwellanyway.PollsshowthatHamas'ssupport,whichfellafteritsshowdownwithFatah,hasstabilised.TheQassams,whichrarelykillbutkeepover20,000Israelisliving\nnearGazainpermanentfear,continuetofall.Israel'scollectivepunishmentofthe1.4mGazans,anditsmissileattacksonmilitantsthatoftenkillsomecivilianstoo(65GazansdiedinthefirstthreeweeksofJanuary),merelydraweverloudercondemnationathomeandabroad.YetEhudOlmert,Israel'sprimeminister,mustfeelhehasnooption.Doingnothingispoliticallyimpossible.Negotiatingaceasefire,whichHamashasoffered—althoughtherearedoubtsaboutwhetheritcanimposeoneontheothermilitantgroupsinGazathatfiretherockets—wouldunderminehiscampaigntounseatHamassinceitwaselectedtwoyearsago.Andamassivearmyoperationtotakecontrolofthestrip,whichsomehawksadvocate,wouldmeanmanydeathsonbothsides,andcouldleavethearmypolicingGazaindefinitely,aresoundingfailureforIsrael's“disengagement”in2005.SanctionsonGazamaynotwork,buttheylooktoughtotheIsraelipublic,andMrOlmertneedstolooktough.Nextweekafinalreportonthe2006Lebanonwarisexpectedoncemoretobehighlycriticalofhisperformance,andpoliticalrivalsaresniffingblood.Yetthecurrentpolicyisself-defeatingtoo.IsraelisholdingpeacetalkswithMrAbbasinthehopethatGaza'scitizens,seeingrealpromiseofaPalestinianstate,willriseupand,ifnotoverthrowHamas—whichsaysthepeaceprocessisworthless—atleastmakeitmoreconciliatory.ButthemoreGazasuffers,theharderitisforMrAbbastocontinuethosetalks.AndifaQassamhitsabusyIsraelischoolplayground,Israel'spoliticiansmayfeelobligedtohitbacksohardthattheydestroythepeaceprocessforgood.IsraeliandWesternpolicyhasbeentotrytoignoreGaza,butGazaisshowingevermoreclearlythatitcannotbeignored.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nKenyaNolet-upinthekillingJan24th2008|NAIROBIFromTheEconomistprinteditionButperhapsasmallbreakthroughinthepoliticalstand-offGettyImagesSoyouwanttoprotest?AMONTHafteritsdisputedpresidentialelection,Kenyaremainsdeeplydividedandunstable.Politicallymotivatedkillings,hackingsandgangrapescontinueinthetownsandinvolatilecountrydistricts.Theeconomyisfaltering.ThelatestbigwigtoattempttomediatebetweenthegovernmentofPresidentMwaiKibakiandtheoppositionOrangeDemocraticMovementofRailaOdingaisaformerUNsecretary-general,KofiAnnan,whoarrivedinNairobionJanuary22nd.“Wehavenotcomewithasolution.Weareheretoinsistonasolution,”heannounced.AglimmerofhopeforanendtothepoliticalimpasseappearedonJanuary24thwhenMrKibaki'sgovernmentannounceditwouldsetupacommissiontoinvestigateallegationsofvote-rigging,althoughasurprisedoppositionsaidithadnotbeenconsulted.Laterthesameday,however,asTheEconomistwenttopress,MessrsKibakiandOdingawereduetomeetforthefirsttimesincetheelection.InternationalelectionobserversagreethatMrKibakistolethedecisivevotestowintheelection.ButMrKibakihassincetakenagriponpowerbyappointingloyaliststokeyministries.Hisstrategyistodragoutnegotiationslongenoughforbusiness,facedwithmountinglosses,tofallinbehindhim.HealsoexpectsmanyordinaryKenyans,seeingtheirjobsdisappear,toaccepthissecondfive-yearterm.TheOrangestrategyistocontinueunsettlingthemarketswithcallsformassactionsandboycottsofcompaniesinwhichMrKibaki'sbackershaveastake.OrangeleadershopeforeigncountrieswillstartapplyingpressureonMrKibaki.TheywantaninterimgovernmentoverseenbytheAfricanUnionoranotherinternationalparty,withelectionsintwoyears,inwhichMrKibakiwouldnotbeallowedtorun.Ifanything,themoodisgettingangrier.TheOrangessaytheyhavefiledacasewiththeInternationalCriminalCourtaccusingthegovernmentofcrimesagainsthumanityforshootingdeaddozensofprotesters.Thegovernmentpromisesacounter-claimtoTheHague,chargingOrangeleaderswith“massgenocide”intheRiftValley.“Verysoon,theyasindividuals,notasaparty,willbelanguishinginjail,”saysagovernmentofficial.Whathashappenedisnotagenocide,norisKenyaanywhereclosetobeingafailedstate.Butthekillingsandclearanceshavebeengrislyandwretched.Whenthedeadrottinginthemaizefieldsorpulledapartinthewildsbyhyenasareeventuallycounted,over1,000Kenyansarelikelytohavebeenkilledsincetheelection.Morethan250,000havebeendisplaced.MostofthevictimshavebeenKikuyu.Butreprisalsarelikely.TheMungiki,aferociousKikuyugangthe\ngovernmenttriedtoeliminatewithkillingsquadslastyear,hasalreadybeenrehabilitatedinsomeofNairobi'sslums.SomeofthekillingsintheRiftValleyappeartohavebeenpremeditatedbyeldersoftheKalenjin,agroupoftribesthatspeakasimilarlanguage.ManyreckonthechainofcommandrunsallthewaytoleadingOranges.Elsewhere,theviolencehasbeenmorespontaneous,withdiversemobsfindingcommongrievanceinperceivedKikuyuarroganceandeconomicdomination.Unfortunately,callsforpeacebyamultitudeofKenyangroups,includingnearlyallofthecountry'sbusinessandreligiousleaders,havebeenunderminedbyposturing.ThegovernmenthasusedtaxpayermoneytopublishinflammatorynewspaperadvertisementsdepictingtheOrangesas“warlordsofviolence”andaccusingdiplomatsofincitementforquestioningtheelectionresult.AndifthegovernmentpropagandaismeanttostirupfearamongKikuyus,MrOdingaishardlymakingthemfeelmorecomfortable.“Ourpeoplearebeingkilledlikedogs,butnoamountofbulletsorintimidationwillstopus,”hetoldanemotionalrallyinKisumuonJanuary21st.Hispeoplewereaskingforguns,hesaid,buthepromisedthemtheballotbox.Ifnecessary,MrOdingawillseektomakehisoppositionstrongholdofwesternKenyaungovernablefromNairobi.ThereisachancethatKenyahasmaturedenoughtooutflankbothitsdemonsanditspoliticians.TheKenyanmediacouncilhasshownthewaybyrefusingtoairinflammatorygovernmentradioadvertisements.Thestakesarehigh.AcompletemeltdowninKenyamaysetbacktheentirecontinent.Itwoulddeterinvestment,distractattentionandresourcesfromDarfurandSomalia,andslowdownAfrica'spushfordemocracy.ButitisalsoadefiningmomentforKenya.Inthecomingmonthsthecountrymayhaveachancetobreakwiththeworstexcessesofcorruption,orelseslideintoevennastiercivilconflict.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nCentralAfricanRepublicBeyondafailedstateJan24th2008|BANGUIFromTheEconomistprinteditionWillforeigninteresthelprescuearottingcountryattheheartofAfrica?WITHmorethanitsfairshareofrebels,refugeesandmercenaries,theCentralAfricanRepublic(CAR)hasnonethelessbeenovershadowedbyitsbiggerneighbours—Chad,CongoandSudan—whosetribulationshavehithertobeenmuchharsher.ButtheCAR'sunhappyturninthespotlightmaycomesoon.Arebellioninthenorthhascausedahumanitariancrisis.EuropeanUniontroopsunderFrenchcommand,partofalargerEUforcetobedeployedmainlyinChad,areduetoarrivesoontotrytopreventviolencespreadingfromSudan'sravagedwesternprovinceofDarfurintotheCAR.Thenewinteresthasalsobroughtsomeunflatteringscrutiny.TheInternationalCrisisGroup,aBrussels-basedlobby,saysthattheCARhasdroppedbelowthelevelevenofafailedstate.“Ithasbecomevirtuallyaphantomstate,lackinganymeaningfulinstitutionalcapacityatleastsincethefallofEmperor[Jean-Bédel]Bokassain1979,”itsays.Thattheself-proclaimedemperor,whowasrumouredtoeatopponents,isrememberedfondlybysomepeopleintheCARshowsjusthowfarthecountryhasfallen.WhentheFrench,whorantheplaceuntil1960,decidedthattheirlong-timeprotégéhadbecomealiability,theyhelpedtoousthim.Thatdidnotbringstability.TheCARhassufferednofewerthan11mutiniesorattemptedcoupsinthepastdecadealone.ThelatestmaninchargeisFrançoisBozizé.Hecametopowerin2003,backedbyChadianmercenaries,oustingAnge-FélixPatassé,whowassupportedbyLibyaandCongoleserebels.Amidthechaos,foreigngovernmentsendorsedMrBozizé'selectionvictoryin2005,reckoninghewasatlastsomeonetheycouldworkwith.Sincethen,however,twomorerebellionshaveerupted.One,inthenorth-west,pitssupportersofMrPatassé,whoisinexile,againstthegovernment'sfeebleforces.Another,inthenorth-east,hasitsoriginsinacombinationofethnictensionandregionalneglectmadeworsebysomedisgruntledBozizémenwhocomplaintheyhavenotbeenpaidforliberatingthecountry.ThrownintothemixarebanditsknownasZaraguina,whoaremostlyfromChad;theyloot,kidnapanddemandthousandsofdollarsinransomforlocalcattle-herdersfromthePeuhltribe.TheresultisyetanotherhumanitariantragedyinapartofAfricaalreadyoverwhelmedbydespair.Aboutaquarterofthecountry's4mpeoplehavebeenaffectedbytheviolence.TheUnitedNationssayssome300,000havefledtheirhomes.ANewYork-basedlobbygroup,HumanRightsWatch,putsmuchofthe\nblameonMrBozizé'sforces,who,itsays,havecommittedhundredsofmurdersandburnedthousandsofhomesinacounter-insurgencycampaignthatstartedin2005.Franceisstillheavilyinvolved;ithassupportedthegovernmentmilitarily,sendingitsownmenandaircrafttoattacktherebels.FrenchadvisersworkingwithMrBozizésaytheyhavepersuadedhimtorestrainhismen.AUNdiplomatsaysthepresidenthasbeguntopaycloserattentiontohumanrights.Evenso,thecountryremainsmiredinpovertyandneglect.Unionsbeganaseriesofstrikesatthebeginningoftheyeartodemandthepaymentofoversevenmonthsofunpaidsalariesforcivilservantsandteachers;thegovernmentsaysithasnomoney.Foreignaid-workerssaythat,thoughinternationalaidtoAfricaasawholehassoared,theCARhasgotevenlessthanbefore.Somewell-wishershopethatthepresenceoftheincomingEUforcemayhelpstabilisethecountryandenableitseconomytostartgrowingagain.Atleastthegovernmentistryingtotalktoitsopponents.“RebelsorZaraguinas,they'rejustbandits,”saysDieudonné-StanislasM'Bangot,apresidentialadviser.“Butwehavetonegotiatewiththem,aswedon'thavethemeanstofightthem.Doyouhaveanybetterideas?”Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nNigeriaDemocracybycourtorderJan24th2008|ABUJAFromTheEconomistprinteditionPresidentUmaruYar'AduafacesaseriouschallengetohislegitimacyAFPFORmostofNigeria'spost-independencehistory,itspoliticiansweremorewaryoflosingofficebyacouporassassinationthanbyanadversevoteinafreeelection.Thesedays,itisthecourtstheyareworriedabout.ElectiontribunalsthatweresetuptoinvestigatelastApril'sflawedelectionshavesofarorderedsixgovernors,overadozensenatorsandscoresoflocal-governmentofficialstoleaveofficeforvariouselectoralshenanigans.OnJanuary28th,PresidentUmaruYar'Aduaisduetoappearbeforehisowntribunal—andevenhisrulingpartycannotbecertainoftheoutcome.Sincetheelection,denouncedbysomeoutsideobserversasthemostfraudulenttheyhadeverwitnessed,over1,200petitionshavebeenfiledbythelosingcandidatesinprotestagainsttheresults.Almostallthesuccessfulpetitionssofarhaveallegedindividualbreachesoftheelectorallaw,suchasballotpaperswithmissingnames.Butmoresystematiccrimesmayhaveoccurred,andindeedthefirstpetitionertoprovewholesalemalpracticeonelectionday—manyvotersneverevensawballotpapers—wonhiscaselastweekagainstthegovernorofEnugustate.Thosebringingthecaseagainstthepresidenthopetodothesame.Theformermilitarypresident,MuhammaduBuhari,andtheformervice-president,AtikuAbubakar,areleadingthechargeagainstMrYar'Adua—bothlosttohiminthepresidentialpoll.Theyallegethattheelectionswereasham,thatthecountryfailedtoproduceacompletevoters'registerandthatballotslackedserialnumbers(andwerethereforeimpossibletotrack).Furthermore,MrAbubakarsayshewasillegallyexcludedfromthepolluntiltheverylastminute,preventinghimfromcampaigning.MrYar'Adua'steamdismisstheallegations,andanyway,theysay,anyirregularitieswouldnothavechangedtheoutcomeoftheelection—MessrsBuhariandAbubakarwerewellbeatenbyMrYar'Adua.Andprovingthattheelectionwasriggedwillbenosmalltask.Therehavebeenmanycomplaintsthatobtainingelectiondocumentsfromthegovernmentisabureaucraticnightmare.Andthelegalrequirementstoproverigginghavebeensethigh.OnesenatorialcandidateinTarabastate,RimaShawulu,wasadvisedthathewouldneed50,000swornaffidavitstoprovethathisconstituencydidnotvoteforthecandidatewhowasdeclaredthewinner.Butthecourtsstillofferhopetothosecandidateswhofeeltheywerecheated.Thejudiciaryisstrongerandmoreindependentnowthaninthepast.Andevenwiththeblitzofcasefiles,thisyear'stribunalsaremovingmuchfasterthanthosefromthedisputedelectionof2003,someofwhichdraggedonforyears.ThistimethepresidentoftheCourtofAppeal,UmaruAbdullahi,askedpetitionersto“frontload”theircases,revealingtheirwitnessesandevidencebeforethehearingsstart.MrAbdullahisaysthecourtshavealsorootedoutthecorruptionthatplaguedpasttribunals.Hesaysheknowsthejudgesarestayingcleanbecauseheisreceivingmoreofficialrequestsfortheirremoval—somethingpastdefendantswouldconsideronlyafterbriberyhadfailed.ThegoodnewsisthatthetribunalsshowthattheruleoflawisbeingtakenseriouslybyNigeria'sinstitutions.Butitisstillaveryroundaboutwaytodemocracy.Thetribunalprocesshasbeenexpensive,forcandidatesandforthecountry.TheNationalAssembly,wheremanyofthemembersarepreoccupiedwithfendingofftribunalcases,hasnotpassedasinglelawsinceitfirstmetlastJune.Andthevariousannulmentssofarhavehadlittledeterrenteffect;localelectionsacrossNigeria'sstatesinthepastseveralmonthshavebeenviolentandofdubiouscredibility.\nRegardlessofthefirstverdictinMrYar'Adua'scase,itwillnodoubtbereferreduptotheSupremeCourt.Manywonderifthejudgeswillwanttogodowninhistoryasaffirminganelectionthatalmosteveryoneconsidersasham.AsoneCourtofAppealjudge,HelenMoronkeji,putitinarecentelectioncase,“Democracyisnotanesotericorfancifulconcepttoodifficulttograsp.”InNigeria,itisthejudiciary,ratherthanthepoliticians,whoseemtounderstandthis.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nSpainZapatero'sbearfightJan24th2008|MADRIDFromTheEconomistprinteditionTheSpanishprimeministermustwinanunexpectednewbattleifheistobere-electedinMarchIllustrationbyPeterSchrankTHEsurpriseingredientintheSpanishelectionofMarch2004wastheMadridtrainbombings,whichkilled191commutersjustthreedaysbeforethevote.ThankstotheclumsinessoftheoutgoingPeople'sParty(PP)government,whichtriedtoblameBasqueterrorists,notIslamistradicals,thebombsprovokedanunexpectedchange.WhathadlookedlikeaPPshoo-inturnedintoaSocialistbounce-back,handingvictorytoJoséLuisRodríguezZapatero,nowSpain'sprimeminister.Fouryearson,MrZapateroisseekingre-election.Thistime,too,asurpriseingredienthasarrivedaheadoftheMarch9thpoll.But,despitetherecentarrestinBarcelonaof14Muslimimmigrantssuspectedofplanningfreshattacks,ithasnothingtodowithIslam.AfterfouryearsinwhichSpain'spoliticianshavearguedbitterlyaboutalmosteverythingelse,thenewingredientistheeconomy.Fewwouldhavepredictedthisevensixmonthsago.Aneconomygrowingatahealthylickof3.8%seemedtobeoneofthestrongestofMrZapatero'sweapons.ButsincethenSpain'shousingbubblehasburstandinflationhasrisen.Globalfinancialturmoilnowthreatenstoturnahoped-forsoftlandingintosomethingmuchharder.AndthePP,seekingtoavengeits2004loss,smellsblood.Forvoterswhowerenotalreadyworried,thisweek'sstockmarketpanicwasarudeawakening.FewSpaniardsarefeelingthepainyet,butmanyexpectto.Aweekendpollshowedthreepessimistsforeverytwowhoareoptimisticabouttheeconomy,asharpreversalfromJuly.ThepoliticalquestioniswhethervoterswillpunishMrZapaterofortheirgnawingsenseofuncertainty,orpreferhimasthemantoleadthemthroughhardtimes.Hisopponentsareinnodoubt.“Thegovernmentthoughtthiswastheirstrongpoint,”commentsAlvaroNadal,thePP'semploymentspokesman.“Theeconomyhadlittleimpactforseveralyears.Nowitisveryimportant.”Thebursthousingbubbleisalreadyslowinggrowthinacountryheavilydependentonconstruction.Unemploymentbegantorisein2007forthefirsttimeinfouryears.Sofar,though,nobodyistalkingofrecession.Thegovernmentpredicts3.1%growthin2008(TheEconomist'sconsensusforecastis2.4%).MrZapateroclaimsthatthebudgetsurplushasreachedarecord-breaking2%ofGDP.Asurgeintheworkforce,mainlyfromimmigration,hasswollenthecoffersofasocial-securitysystemthathasgained2.7mmorecontributors.Thegovernmentthinksithasalarge\nfightingfundtospenditswayoutoftrouble,ifitneedsto.“Wemustwaitandsee,”saystheSocialists'chiefeconomist,InmaculadaRodríguez-Piñero.EventhePPseesroomforearlytaxcuts.Ifthepollsofvotingintentionsareatallreliable,SpaniardsareslowlybutsurelydriftingawayfromMrZapatero.ASocialistleadoffivepointsin2004isdowntoonlytwoinsomepolls.ItisnosurprisetofindthatmanySocialistswishtheyhadfoughttheelectionlastyear,beforetheworldeconomywobbled.Theyhavewatchedindismayasfast-growingGDPinthepastthreeyearshasbeenmatchedbyfast-growingeconomicpessimism.Indeed,MrZapaterohasperformedakindofreversealchemy,transformingeconomicgoldintopoliticallead.Withtheeconomynowweighingsoheavily,twounlikelycampaignchampionshaveemerged.Ononesideisthesolid,ifunglamorous,figureofPedroSolbes,thefinanceminister.MrZapateroispushingthisformerEuropeancommissionerasthesafepairofhandsthatSpainneeds.“Hewasborntodothis,”hesaid,whenMrSolbesagreedtostayonaftertheelection.OnthePPsideisManuelPizarro,bestknownuntilrecentlyasaformerpresidentofEndesa,anelectricityutility.Heenduredmuchgovernmentmeddlinginatakeoverbattlethatragedformostofthepastfouryears.Nowthepartyleader,MarianoRajoy,hashiredhim.SomesayhecouldbethePPfinanceminister.MrPizarro,aforthrightliberal,hasthecharismathatMrSolbeslacks.Butheisalsoapoliticalnovice.Aproposeddebatebetweenthetwomenisbeingbilledasthebigeventofthecampaign.MrSolbeswantstohelphisopponentto“clarifysomeideas.”MrPizarroretorts:“Bringthemallon.”YetthePPhasamountaintoclimbtogetneartheSocialists.Theopinionpollspointtoanarrowinggap,butnotyettoaPPwin.MrZapaterohasmuchhigherpersonalratingsthanMrRajoy,andMrSolbesisoneofhismorepopularministers.AndthePPhasdonefartoolittletowookeyvotersinthepoliticalcentre.MrRajoytreatsglobalwarmingasajoke.HispartybackedtheunpopularIraqwar.Socialandreligiousconservativeshavebecomeincreasinglyvisiblewithintheparty,protestingagainstSocialistlawstobringingaymarriageandquickdivorcesortotakereligionoutofthecoreschoolcurriculum.Angrydebatesoverthegovernment'sattemptedpeacedealwithETA,theBasqueterroristgroup,anditsgrantingofmorepowerstoCataloniahavepulledsomevotersintothePPcamp.Butthefuriouslynationalistictonethatthepartyhasemployedhasputothersoff.NorhasthetreatmentofoneleadingPPcentrist,AlbertoRuiz-Gallardón,apopularmayorofMadrid,helped.MrRuiz-Gallardónwaskeptofftheparty'slistmainlytomakeroomforMrPizarro.SomeseethisaspartofthejockeyingforthepartyleadershipifMrRajoylosestheelectionandisforcedtoquit.MrRajoywashand-pickedasleaderbythepreviousPPprimeminister,JoséMaríaAznar,whosteppeddownin2004becausehehadpledgedtoservenomorethantwotermsinoffice.CriticssayMrRajoylacksthestrengthofacandidatewhohashadtofighttothetop.Allthis,however,mayweighlessheavilyonvoters'mindsonMarch9ththantheeconomy.Spainisstagingwhatamountstotherichworld'sfirstbigpost-credit-crunchelection.Politiciansheadingforthepollsinothercountriesthatarefeelingthefall-outfromglobalfinancialturmoilarewatchingcarefully.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nItaly'srockygovernmentOnitswayoutJan24th2008|ROMEFromTheEconomistprinteditionRomanoProdi'scentre-leftgovernmentseemstobeoutoftimeONEconservativesenator,inhospitalforsurgery,plannedtocome580km(360miles)byambulancetovote.Italy'spoliticalcrisesarenothingifnotmelodramatic.Butthisweek'swasbuildingtoanexceptionallytenseclimax.OnJanuary23rdtheChamberofDeputiespassedamotionofconfidenceinRomanoProdi's20-month-oldcentre-leftgovernment.Adaylater,asTheEconomistwenttopress,hefacedafartoughertestintheSenate.Asoneallyafteranotherpeeledawayfromhiscoalition,hewasunderpressuretoresignratherthanbedefeated.MrProdi'sgovernmentwaspitchedintocrisisbythedeparturefromhiscoalitionofClementeMastella,thejusticeminister,alongwithhistinyparty,theUdeur.WithoutthevotesoftheUdeur'sthreesenators,MrProdinolongerenjoyedamajorityoftheSenate'selectedmembers.TwosenatorsfromasmallliberalpartyledbyLambertoDinithenwithdrewtheirsupport,asdidamaverickright-winger.MrProdi'sdimminghopesofsurvivalrestedonsevenunelectedlifemembers—andhisprospectofseducingoppositionsenatorswithspecialfavours.Italiansusuallytaketheirpoliticswithequaldosesofhumourandcynicism.Whatisstrikingaboutthelatestparliamentarymanoeuvresisthattheyarebeingplayedoutagainstabackgroundofpopularfuryandshame.Lastmonth'snewsthatbysomemeasuresItaly'sGDPperheadhadbeensurpassedbySpain'swasabigshock.ThencameadeeplyembarrassingNaplesgarbagecrisis.Andallthisatatimewhenwage-earnersaresufferingunderstifftaxrises.Manypoliticiansseemoddlyunawareoftheextentofpublicanger.Addressingthelowerhousethisweek,MrProdisoundedliketheleaderofagovernmentwithsolidbacking,notonewhothepollssuggesthasanapprovalratingofjust31%.ItwaslefttotheheadoftheItalianCatholicbishops,CardinalAngeloBagnasco,tovoicepublicalarm.Hespokeinapocalyptictermsofadividednation,bereftofhope.HisspeechalsostirredsuspicionsofaVaticanhandinItaly'spoliticaltroubles.CatholicleadersarepressingforchangestoItaly's1978abortionlawthattheyknowmostofthecentre-leftwouldresist.Justbeforethelatestpoliticalcrisisblewup,theywereatloggerheadswiththegovernmentoveranincidentinwhichPopeBenedictpulledoutofavisittoLaSapienzauniversityinRome,afterprotestsbyaminorityofstudentsandacademics.TheVaticanclaimed(thoughthegovernmentdenied)thattheauthoritieshadbeenunabletoguaranteethepope'sprotection.MrMastellaisaChristianDemocratwithcloselinkstotheVatican.Buthehadreasonsofhisownforabandoningthecentre-left.Histinypartycouldbesweptfromparliamentbytheelectoralreformsbackedbythemaincentre-leftgroup,theDemocraticParty.AndonJanuary16thMrMastellaquitthecabinetafterhe,hiswifeandseveralleadingmembersofhispartybecamesuspectsinacorruptioninvestigation.Alldenywrongdoing;andMrProdiwentasfarashecouldintheChamberofDeputiestoassureMrMastellaofhiscontinuingsupport.Yettheex-ministermustfeelhischancesofreturningtoofficemaybebetterinacentre-rightgovernmentled,onceagain,bySilvioBerlusconi.IfMrProdifalls,andunlessacross-partytechnocraticgovernmentisthenformed,thatwillbetheless-than-appealingalternativebeforeItaly'sangryvoters.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nItalianarttreasuresCominghomeJan24th2008|ROMEFromTheEconomistprinteditionItalywinsbacksomesmuggledclassicalarttreasuresAPITISatreasurehuntwithadifference:conductednotwithmetaldetectors,butbynegotiation.Italyisatlastreapingthebenefitsofatwo-yearcampaigntoregainsmuggledantiquities.FiveAmericanmuseumshavebeencajoledintoreturningworksthattheyclaimtohaveacquiredingoodfaith.Almost70ofthefinestarenowondisplayinRome—andtheyhavejustbeenjoinedbytheonlyknownintactworkbyEuphronios,anAthenianvase-painter(pictured).NewgroundisalsobeingbrokenwiththereturnofnineitemsfromtheprivatecollectionofaNewYorkphilanthropist,ShelbyWhite.Thisisthefirstpactnegotiatedwithanindividual.FrancescoRutelli,thecultureminister,metMsWhitetwiceinAmericabeforethedealwasdone.Shehasalwaysmaintainedthatsheandherlatehusband,LeonLevy,hadnoideathatthepiecesweresuspect.Atenthitemfromtheircollection,alsobyEuphronios,isbeingsentbacktoItalyin2010.UnderItalianlaw,anyclassicalartefactsfoundonItaliansoilbelongtothestate,evenif(likeEuphronios'svases)theyoriginatedinGreece.AformercuratoroftheJ.PaulGettyMuseuminLosAngelesandanAmericanartdealerhavebeenontrialforalmostthreeyearsinRome,chargedwithtraffickinginillegallyexcavatedobjects.Bothdenywrongdoing.Theirindictmentwasfollowedbyadealthatofficialssayiscrucialforeffortstocurbthetrafficincontrabandantiquities:Switzerlandhasundertakentorequireimportersofclassicalartefactstoproduceproofsoforiginandoflegalexport.Thedealswiththemuseumshaveallinvolvedgive-and-take.InexchangeforworksclaimedbyItaly,themuseumshavebeengivenothersonlong-termloan.“Italianloversofartandarchaeologywillgetbackwhathasbeenstolen,whileothersabroadwillprofitfromtheexhibitionofsometimesevenmorebeautifulworks,”saysMrRutelli.ThedealwiththeGettymuseumwasthehardesttodobutalsothemostproductive:40oftheworksonshowinRomecomefromthere.Buttheydonotincludethe“Gettybronze”,whichtheItalianshadhopedtoretrieve.Thisthird-centuryBCstatue,attributedtoLysippos,wascaughtbyItalianfishermenin1964.TheGettyinsiststhatitwasfoundininternationalwaters.TheItalianssayitwasstillillegallyexported.AnItaliancourthasfoundfortheAmericans.Therestitutionofthetreasureswillalsobringtoanenda1,872-yearmaritalrift.Onepieceonshowisastatuefrom136ADoftheEmperorHadrian'swife,VibiaSabina.Itwillnowbeputalongsideherhusband'sstatueathisvillainTivoli.ToobadthepairhadoneofancientRome'smostdisastrousmarriages.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\n\nEasternEurope,AmericaandRussiaPipedreamsJan24th2008|VILNIUSFromTheEconomistprinteditionAmericaseemstocaremorethantheEuropeanUnionabouteasternEuropeGetarticlebackgroundEUROPEANSmaynotalwayslikeit,butAmericastillmattersmostfortheirsecurity.AsKosovoedgestowardsindependence,NATOpondersfurtherexpansionandRussiaripsEurope'sthreadbareenergypolicytorags,everydebateinvolvesAmerica.Andthemoodisgloomy.“Russiaisgettingstronger;wearegettingweaker”,concludesoneEuropeanpoliticalleader.ThatisalarminglyclearinSerbia,whereapro-Russiannationalist,TomislavNikolic,cameoutaheadinthefirstroundofthepresidentialelectiononJanuary20th.SerbiahasjustsignedanenergypacttodistributeRussiangasexportstoEurope;inreturnaRussiancompany(theoilarmofGazprom,thestate-rungasgiant)istogetacontrollingshareinSerbia'snationaloilmonopoly.EuropeansflinchattheideaofKosovo,themostlyethnic-AlbanianprovinceofSerbia,declaringindependenceimmediately—somethingtheRussiansstronglyoppose.TheAmericansfearthatmoredelayrisksviolencebyimpatientKosovarsorbySerbprovocateurs.SomeEuropeanspleadforafewweekslonger,perhapstoallowyetmoretalkswithSerbiaafteritspresidentialelection,orsimplytogetmoreEuropeanwavererssuchasSpainandRomaniatobackEuropeanUnionrecognitionofanindependentKosovo.Serbiaisoneofwhatsomeanalystscall“swingstates”,placeswhereRussiaandtheWestarevyingforinfluence.OthersincludeUkraine,Georgia,AzerbaijanandMoldova—andevenafewEUmemberssuchasLatviaandBulgaria.PresidentVladimirPutinofRussia,accompaniedbyhislikelysuccessor,DmitryMedvedev,recentlysignedadealwithBulgariatobuildanewpipelineacrosstheBlackSea.CalledSouthStream,thiswillpipeRussiangasdirecttoEurope,bypassingtransitcountriessuchasUkraineandPoland.Inthis,itmatchesNordStream,asimilarbypassundertheBaltic(seemap).SouthStreammaystymiearivalEUeffort,Nabucco,whichwasmeanttobringgasfromtheCaspianandCentralAsiatowesternEuropethroughtheBalkans.NabuccowouldbetheonlypipelinefromtheregionnottocrossRussianterritory,givingEuropethehopeofmorediversifiedgassupplies.Nabucco'sprospectsalreadylookedshaky:gasforitmustcomefromeitheratrans-Caspianpipeline(whichRussia\nhasblocked)orIran(whichAmericadislikes).IfSouthStreamwerebuilt,itwouldmakeNabuccouneconomic.PipelinesanddependenceonRussiangasarenottheonlysourcesofcontroversy.AmericanandEuropeandiplomatsarealsowrestlingwiththequestionofNATOexpansion,whichmayfeatureatthealliance'ssummitinBucharestinApril.TheleadingcandidateisCroatia.AlbaniaandMacedoniaarelessprepared,butbringingtheminmightbeseenasonewayofcounteringinstabilitycausedbySerbia'shostilitytoKosovo'sindependence.ThatleavesUkraine,whosenewgovernmentsaysitwantseventuallytojoinNATO,andGeorgia,whichtarnisheditsdemocraticcredentialsinacrackdownonoppositionprotestsinNovember.Offeringeithercountryamembershipactionplan—astagingposttojoiningthealliance—wouldenrageRussia.ButholdingbackmightbeseenasgivingtheKremlinavetooveritsneighbours'securityarrangements.Thehuntisonforsomethingelsetoofferinstead.LargelysilentistheEU,whosemembersappearmoreconcernedoverinstitutionalreformandemissionstargets(seearticle)thangeopoliticalissues.ThatworriestheAmericans.TheyseemtohavesettledarowwithPolandoveraplannedmissile-defencebase.Butnotmuchelseisgoingright.RonAsmus,aformerAmericandiplomatnowattheGermanMarshallFund,athink-tank,fretspubliclyabouta“rollback”oftheWest'sinfluenceineasternEurope.Heisnottheonlyone.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nEuropeanenergyHotairJan24th2008|BRUSSELSFromTheEconomistprinteditionThestartofbigargumentsoverEurope'semissionstargetsTHEEuropeanUnionrevealedonJanuary23rdhowitplanstosavetheworld.Amammothclimate-changeplanspellsoutindetailhowmuchpaineachofits27memberswillhavetobeariftheEUistomeetambitioustargetssetbynationalleaderslastMarch.Theaimistocutgreenhouse-gasemissionsby2020byatleastafifth,andmorethandoubleto20%theamountofenergyproducedfromrenewablesourcessuchaswindorwavepower.Iffuelfromplantsprovesgreenenough,10%ofthefuelusedintransportmustcomefrombiofuelsbythesamedate.Thenewplanturnsthesegoalsintonationaltargets.Cuemuchgrumbling,andnodoubtmonthsofhorse-trading,astheEuropeanCommission'srecommendationsareturnedintobindinglawbynationalgovernmentsandtheEuropeanParliament.Countrieswithgreeneryintheirveinsarebeingaskedtotakemoreoftheburdenthannewermembers.Sweden,forexample,isbeinginvitedtomeet49%ofitsenergyfromrenewables.Attheotherend,Maltagetsarenewablestargetofjust10%.Itisasimilarstorywhenitcomestocuttinggreenhousegases:by2020,Denmarkmustcutemissionsby20%from2005levels;BulgariaandRomania,thenewestmembers,maylettheiremissionsriseby20%.EUleadershiponclimatechangewillnotcomecheap.Thedirectcostsalonemaybe€60billion($87billion),orabout0.5%oftotalEUGDP,by2020,saidthecommission'spresident,JoséManuelBarroso.Butthisisstillpresentedasabargaincomparedwiththecostofinaction,whichMrBarrosoputattentimesashigh.Oh,andleadingtheworldinthefightagainstclimatechangeneednotcostjobs,eveninthemostheavilypollutingbranchesofheavyindustry.“WewanttokeepourindustryinEurope,”insistedMrBarroso.ThetricktosquaringthatcircleistheEU'semissions-tradingscheme(ETS).ThisobligesbigpolluterssuchaspowercompaniesormanufacturinggiantstotradepermitsthatallowthemtoemitCOand2otherclimate-changenasties,withinasteadilytighteningoverallcap.IfcountriessuchastheUnitedStatesandChinadonotsignuptobindinginternationalagreementsby2011,thentheheaviestgreenhouse-gasemittersinsidetheEUmaybegiventheseallowancesfree,thecommissionsuggests.Or,itthreatens,firmsoutsidetheEUcouldbeforcedtobuyETSpermits.Theywon'tlikethat.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nFrenchreformsAttalitheHunJan24th2008|PARISFromTheEconomistprinteditionAbraveagendaforreform,butwilliteverbeimplemented?MANYatreehasbeenfelledinthecauseofdiagnosingtheillsofFrance'seconomy,andprescribingacure.Indeed,Franceexcelsinbothproducingandignoringofficialreports.Twoyearsago,MichelPébereau,chairmanofBNPParibas,wroteoneonhowtocuretheFrenchaddictiontopublicspending.Ayearbeforethat,MichelCamdessus,aformerIMFboss,pennedanotheronhowtoboosteconomicgrowth.Thethenfinanceminister,NicolasSarkozy,calledtheCamdessusreporthis“bedsidereading”.Yetfewideasineitheroftheseearlierreportswereturnedintopolicy.Now,Franceisagainchewingovertheadviceofaneconomiccommission.PublishedonJanuary23rd,thisreportwasrequestedbyPresidentSarkozy,andwrittenbyacommissionheadedbyJacquesAttali,onceright-handmantoFrançoisMitterrand,aformerSocialistpresident.Liketheothers,itisanexcellenthandbookfortheradicaloverhauloftheeconomy.Butwillit,likethem,alsoendupontheshelf?ManyproposalsintheAttalireport,entitled“300DecisionsforChangingFrance”,arenotnew,buttheyarestillbrave.Theyincludethederegulationof“restrictedprofessions”,suchaspharmacistsandtaxidrivers,andtheabolitionofalawbanninghypermarketsfromsellingatbelowcost.Othersarealreadygovernmentpolicy,likethecreationoftensuper-universities.Othersstillaremorenovel,suchastheeliminationofdépartements,theadministrativelayerbetweentowncouncilsandregions,thecreationoftenecologicalnewtownsandtheteachingofeconomicsinprimaryschools.Whileurgingcompensationforlosers,thereportaddsuptoasweepingliberalisationoftheeconomy.“TheFrenchneedinparticulartoknowthatthefutureofworkisnolongerinthepublicsector,”itsays,“andthatofcompaniesisnolongerinsubsidies.”MrAttalicalculatesthat,ifadopted,hisplanscouldboostannualGDPAPgrowthbyonepercentagepoint,cutunemploymentfrom8%to5%,reducethenumberslivinginpovertyfrom7mto3mandtakepublicdebtdownfrom64%to55%ofGDP.But,ashealsomakesclear,toachievethis,hismeasuresmustbeadoptedwholesale,notàlacarte.Heevenincludesatimetable:approvalbyApril,implementationbetweenthenandJune2009.Whenheappointedhim,MrSarkozypromisedMrAttalithat“whateveryoupropose,wewilldo”.Thereportquotesthisphraseonitsopeningpage.Yet,althoughMrSarkozysaidthisweekthatheagreedwith“thebulk”oftheproposals,heexplicitlyruledoutsome,suchastheabolitionofthedépartements.Healsoarguedthatderegulatingpharmaciescoulddeprivepeopleof“apublicservice”.DespiteMrSarkozy'scampaigntalkofarupturewiththepast,onalmosteverymeasure,fromthereformofuniversitiestopensionstothelabourmarket,hisreformsinofficehaveturnedouttobehalf-hearted.Forexample,thenewjobcontractjustagreedbytheunionsAbittoobold,Jacquesandemployersaftermonthsofnegotiationwillenableemployerstoshedworkerswithouttheriskofgoingtoalabourtribunal,butonlyatthepriceofhigherpay-offs.EricChaney,chiefEuropeaneconomistatMorganStanley,termsthisa“homeopathic”remedy.ItcouldbethatMrSarkozynowplanstousethehalf-reformsthatheisimplementingasstepping-stonestosomethingbolder.ItcouldalsobethathehopestousetheAttalireport,writtenbyaone-timemanoftheleftforapresidentoftheright,tofindanewconsensusforpressingaheadmoreforcefully.Pastexperiencewithsuchreports,however,isnotencouraging.AsMrPébereauputitwearilyinhisreportin2005,“themultiplicationofcommissions,committeesandreviewscontrastswiththefeebleusemadeoftheirwork.Theircreationevensometimesseemstobeawayofputtingoffdecisions.”\nCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nCharlemagneTheinandoutclubJan24th2008FromTheEconomistprinteditionThedangerousappealofasemi-detachedstatusforBritainIllustrationbyPeterSchrankFEWdocumentsinthelongandwearyhistoryofBritain'son-offinvolvementwiththeEuropeanprojecthaveinspiredmorebadfaiththantheLisbontreaty,nowtrundlingslowlytowardsratification.IntheHouseofCommons,debateonitbeganthisweek,promptingmuchinterestandexaggeratednervousnessinBrussels.Insultsareflying,asallsidesaccuseeachotheroflyingaboutthetreaty,itsimplicationsandtheirmotivesforsupportingit,opposingitorcallingforareferendum.InonerespectonlyisthereahintofconsensusbetweenEuroscepticsandfederalists.VoicescanbeheardonbothsidescallingforBritaintomovetothemarginsoftheEuropeanUnion.EuroscepticsdreamofapingSwitzerlandandNorway,whichenjoyaccesstothesingleEUmarketthroughtheEuropeanFreeTradeAssociation(EFTA)andbilateralpacts,butkeepcontroloverforeignpolicy,farmsandothertouchstonesofsovereignty(theyalsopaylessintoEUcoffers).Eurograndeesdreamthat,ifBritainwouldonlyshiftasideratherthanactingasaconstantbrakeonintegration,federalunionmightcomesooner.Attheriskofbeingdifficult,Charlemagneoffersthisthought:theaccusationsofbadfaitharejustified,andadmittingthiswouldbehealthy;butitisunhealthynonsensetothinkthatanybodywouldgainfromasemi-detachedBritain.Startwiththebadfaith.ForBritishcritics,thetreatyisabidtobamboozlevoters,andsmuggleintolawmostofthefailedEUconstitution(rejectedinFrenchandDutchreferendumsin2005).Thisiscorrect—asmanyEuropeanpoliticianshavenoted.AstheBritishdebatebegan,criticsdemandedtoknowwhyLisbondidnotmeritthereferendumpromisedontheconstitution(seearticle).OneToryaskedifthegovernmentthoughttheBritishpublic“toothicktounderstanditsbenefits”.Ordidministersfearbeing“rumbled”,hewondered,forgivingawaypowerstotheEU?MuchoftheBrusselsestablishmentwouldanswer“yes”tobothquestions.TheyseeBritishvotersasexceptionallyignorant;or,tobemorecharitable,theythinktheBritishdebateispoisonedbynationalism,fomentedbyscarestoriesintheBritishpress.BrusselstakesasgiventhecowardiceoftheBritishgovernmentwhenitcomestomakingthecaseforEurope.ThoseworkingtoavoidpopularvotesonthetreatyjustifytheiractionsonthegroundthatEuroscepticsareactinginstillworsefaith.BritishEuroscepticsareassumedtowantareferendumonlybecauseitwouldbelost,condemningtheEUtomoreyearsofinstitutionalwrangling.Inmanycases,thisassumptioniscorrect.Fromtheotherside,theBritishgovernmentisaccusedofbreakingitswordbyrejectingareferendum.Thistooistrue.EvenEurophileswinceasministersstruggletojustifytheirabout-turn.Theyoffera\ndifferentrootcauseforthegovernment'scontortions:theyblameTonyBlair,theformerprimeminister,forofferingareferendumontheconstitutioninthefirstplace.Inothercapitals,thereisspecialrancourthattheBritishsecuredheftyopt-outsfromtheconstitutionandcamebackformoreintheLisbontreaty—andstillgrumbleabouttheresults.NoEUleaderhasyetcalledforBritain'sexpulsion.ButtheideaisgainingcurrencythatBritainmaybeanintolerableobstacletoEuropeanunity.AttherightBrusselsdinners,speakersofacertaingrandeur(anex-commissioner,say,orabigwigfromtheEuropeanParliament)wintable-thumpingapplausebydenouncingperfidiousAlbion,beforenotingsolemnlythattheLisbontreaty,forthefirsttime,allowscountriestogetout.ValéryGiscardd'Estaing,aformerFrenchpresidentandheadoftheconventionthatdraftedtheconstitution,hasdeclaredthatanycountrythatfailstoratifytheLisbontreatyshouldseekaspecialstatuswithintheEU,orleave.OnlyBritainfacesthatpossibility,headded,toavoidanypossibledoubts.SuchreveriesignorethefactthattheEUis,firstandforemost,aneconomicproject.Andthat,whenitcomestoeconomicnationalism,therearemanyworseoffendersthanBritain(France,forone).Britainmaybesulky,butitpreacheseconomicliberalisation;whenitacceptsthelogicofasupranationalprojectsuchasthesinglemarket,itisthenasticklerfortherules.Indeed,Britain'sabsencefromtheEuropeantoptableismorelikelytoincreasenationalismwithintheEUthantodecreaseit.TheSwiss-NorwegianlureAsemi-detachedstatushasadifferentresonanceforBritishEurosceptics.MentionSwitzerlandandNorway,andtheygomisty-eyed.Britainisanancientmaritime,mercantilepower,itisargued.Thesalttangoftheoceanisintheblood,withayearningtoroamtheworldunfetteredbycontinentalslothandredtape.Thereisjustoneproblem:BritainisnotNorwayorSwitzerland.EFTAcountrieshaveaccesstotheEUmarketonrelativelygenerousterms.Youcanquibbleaboutwhetherthedealisasgoodasitlooks(membershavenoinfluenceoverEUrules,butmustobeythemanyway).ButthatargumenthaslimitedweightwithBritishEurosceptics,whosaytheircountryenjoysminimalinfluencenow.Sotryasimplerline.TheEFTAcountriesaresmall,makingconcessionstothemprettypainless.AndtheymaybetemptedtojointheEUoneday,makingitworthwhiletoofferthemsweeteners.IfBritainlefttheEU,the26othercountrieswouldsettermsforfreeaccesstotheirmarket(includingabigcontributiontotheirbudget).Theywouldhavenointerestinofferingasweetdeal:asanymemberofabookclubcanattest,thefreedictionaryisofferedonthewayin,notonthewayout.BritainwouldremainjustasvulnerabletoEUcallsforharmonisedworkinghours,ortaxrates,ifnotmoreso.Asanambassadorpredicts,“Britainwouldhavetopayaveryhighprice.”Inshort,BritainmightenjoylessnotmoretradefreedomifitpulledhalfoutoftheEU,asprotectionistgovernmentsflexedtheirmusclesandallowednationalismtotarnishtheproject.Anyonewhodreamsotherwiseislyingnotjusttoothers,butalsotothemselves—theworstbadfaithofall.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nEconomicnervesNothingtosmileaboutJan24th2008FromTheEconomistprinteditionTheprimeministerfacesadeterioratingeconomicoutlookReutersDURINGhisdecade-longstintaschancelloroftheexchequer,GordonBrownrelishedoneachievementaboveallothers.Thatwashisrecordindeliveringeconomicstability,notjustbykeepinginflationdownbutalsobymaintaininggrowth.TowardstheendofhistimeattheTreasury,MrBrownevenassertedthatBritainwasenjoyingitslongestperiodofsustainedgrowthforcenturies.Thehistoricalfigureshadtobetorturedtobuttressthisclaim,buttheprimeministerremainsinordinatelyproudofhissuccessaschancellor.HetoldMPsonJanuary23rdthatBritain'seconomicstabilitywasacknowledgedaroundtheworld.ThetroubleisthatBritain'srecordasafinancialregulatorwasalsooncegreatlyadmired—beforeNorthernRockblewthatreputationapart.MrBrownhasspentmuchtimerecentlyfindingingeniouswaystoavoidthepoliticalembarrassmentoftakingthestrickenmortgagelenderintoformalpublicownership.Yetiftheeconomyslipsbadly,theprimeministerwillfindthatafarmoreseriousmishapthannationalisingNorthernRock.Thedangersofaneconomicreverseappeartobemounting.MervynKing,thegovernoroftheBankofEngland,struckasombrenoteonJanuary22ndwhenheaddressedagroupofbusinessmeninBristol.“Toputitbluntly,”thecentralbankersaid,“thisyearweareprobablyfacingaperiodofabove-targetinflationandamarkedslowingofgrowth.”Temperingthisbleakmessage,officialstatisticspublishedthisweekshowedthattheeconomywasstillgrowingrespectablyinthefinalthreemonthsof2007.GDPexpandedataquarterlyrateof0.6%,moreorlessinlinewithtrendgrowthandonlyalittlelessthaninthepreviousquarter,whenitincreasedby0.7%.Thelatestlabour-marketfigureshavealsobeenencouraging.Employmentjumpedby175,000inthemostrecentthreemonths(toNovember)comparedwiththepreviousquarter,andthejoblessratefell.Yeteconomicmomentumisquicklydissipatedifitmeetsstrong-enoughcounterforces.Worryingly,thesehavenowemergedandappeartobegaininginstrength.Foronething,asAmerica'swoesintensify,Britainisboundtostartfeelingsomeofthepain.Historicallythetwocountries'businesscycleshavetendedtomovetogether,notonlythroughtradeflowsbutalsobecauseofespeciallystrongfinancialandinvestmentlinks.Moreimportant,Britainwillbehithardbythecreditcrunch.Conditionsinmoneymarketshaveeasedalotsincetheendoflastyear,thankstocentralbanks'decisioninDecembertopumpcashintothem.The\nbenchmarkthree-monthrateatwhichbanksborrowfromoneanotherhasfallensharplyoverthepastmonth.Butthefinancialcrisisremainsgraveandisincreasinglyaffectingthewidereconomy.Lendersslashedtheamountofcredittheywerepreparedtomakeavailablelatelastyear,andtheyintendrestrictingitagaininthefirstquarterof2008.Thehousingmarketisalreadywilting,asbankstightenthetermsonwhichtheymakemortgageloansandwould-bebuyerstakefrightatthepossibilityofinstantlossesontheirpurchases.Thataugursillforconsumerspending,whichhasbeenbuoyedoverthepastcoupleofyearsbyanotherboutofrapidhouse-priceinflation.Risinghousingwealthhasoffsetadismalperiodforlivingstandardsas,despiteastrongeconomy,risinginflation,taxesandinterestpaymentshaveerodedgrowthinrealdisposableincomes.Nowthispropisabouttoberemoved.Indeed,thefirstsignsofaconsumerslowdownarealreadyapparent.OfficialfiguresforretailsalesinDecemberwereweak,contributingtothefallingpricesofretailers'sharesearlierthismonth.Asconsumersgrowmorecautiousaboutspendingandborrowing,itseemsunlikelythatothersourcesofdemandwillcometotherescue.Theeuroarea,Britain'smainexportmarket,willitselfbeslowing.Businesseswillbeinnomoodtoinvestinaweakeningeconomy,andwillinanycasebeconstrainedbytightercredit.Iftheeconomyistomakewayagainstthesecounterforces,itneedseitherabudgetaryoramonetarystimulus.MrBrownwasluckythatthelastglobaldownturn,precipitatedbythedotcomcrash,coincidedwithasurgeinpublicspendingthathad,handily,alreadybeenplanned.Butafterthathefailedtoputthepublicfinancesinorder,andthelatestfigurestellasorrytale(seechart).Thebudgetdeficitlookssettowidento£43billion($84billion)in2007-08,accordingtoCitigroup,abank.MrBrown'simprudencehaslefthischancellor,AlistairDarling,withlittlescopetoprovideafiscalboost.Thatleavesmonetarypolicy.TheBankofEnglandcutthebaseratefrom5.75%to5.5%inDecember.Butearlierthismonthonlyoneofthenine-strongmonetary-policycommitteebackedanotherquarter-pointcut.MrKinghintedinhisspeechthisweekthatacutwasonitswaynextmonthwhenhesaidthatthecurrentbaseratewas“probablybearingdownondemand”.Thegovernoralsostressedpointedly,however,theriskthatinflationwillrisethisyear—notleastbecauseoftherecentsharpfallinsterling'sexchangerate,whichwillpushupimportprices.ItwasMrBrownwhogavetheBankofEnglandfreedomtosetinterestratesinordertomeetaninflationtarget.Nowthatsameindependentcentralbankisgrapplingwithanuglyconjunctureofrisinginflationandfallinggrowth.TheprimeministermustbeprayingthatMrKingandhisfellowrate-settersmaketherightcall.Hispoliticalfutureaswellashiseconomicreputationmaydependuponit.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nPolitical-partyfundingHainwalkstheplankJan24th2008FromTheEconomistprinteditionAnembattledministerfinallyquitsBarcroftMediaWHICHisaworseministerialsin,corruptionorincompetence?DefendingPeterHain—nowtheex-workandpensionsandWelshsecretary—againstcallsforhishead,GordonBrownimpliedthatthelatterwasalesserandforgivableevil.MrHain'slatedeclarationof£103,000($200,500)thatheraisedtofundhisfailedbidforLabour'sdeputyleadership,saidMrBrown,wasmerely“anincompetence”thatdidnotnegateMrHain'sministerialvirtues.Itwasatbestanunconvincingdefence,and,asitturnsout,atemporaryone.OnJanuary24th,aftertheElectoralCommissionreferredhiscasetotheMetropolitanPolice,MrHaintelephonedtheprimeministerandresigned.Hehadtriedtodownplayhissloppyaccounting—thefullextentofwhichemergedonlythismonth—asanoversight.Buthispositionwasweakenedbythefactthatsomeofthemoneyhadbeenchannelledthroughadodgy“think-tank”,andbyhisownfailuretoanswertheresultingquestionsfully.Onthefaceofit,itwasodd,perhaps,thattheprimeministerhungontoMrHainforsolong.RaisedinSouthAfricaandanerstwhileHainresignsto“clearhisname”campaigneragainstapartheid,MrHainisaformerLiberalwhohasneverbeenwidelylovedintheLabourParty.ButotherconsiderationsinfluencedMrBrown'sloyalty.Thisisthefirstcabinetministerhehaslost—neverahappymomentforaprimeminister.Perhapsmoreimportantly,thefuroreoverMrHainemergedinthewakeofwiderunhappinessovermysteriousdonationstotheLabourparty.“Resigning”MrHainmighthaveincreasedthepressureontwootherLabourfigureswithmurkyfinances:HarrietHarman,whobeatMrHaintobecomedeputyleader,andWendyAlexander,theparty'sScottishleader.Itstillmight.Justasbad,MrBrown'sdefenceofMrHain,thoughtepid,nowlooksfoolhardy.Andthoughhispublicprofilehasnevermatchedhisownvauntingambition,MrHainwasatleastarecognisableface,andasometimesoutspokenvoice,inacabinetmostlypopulatedbyrelativeunknownsandovershadowedbyadomineeringand(atthemoment)somewhatunpopularprimeminister.Aftermorethanadecadeingovernment,Labour'spoolofuntappedministerialtalentisnotoverflowing.Anotherresultoflong-termincumbency,somemayinfer,isahigh-handedattitudetotherules—andsleaze.Thatimpressionwillbereinforcedbythepoliceinvestigation,itselfanechooftheloans-for-peeragesprobethatdoggedtheendofTonyBlair'spremiership:awfulforMrBrown,andwonderfulfortheTories.ThetruthisthatBritishpoliticsisnotassleazyasepisodeslikethismakeitseem.Butforthat,thepoliticianscanonlyblametheirown“incompetence”.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nThepoorUndeservingJan24th2008FromTheEconomistprinteditionHeartsarehardeningagainstthosewhohaveleastTHEpoormaybealwayswithus,butjustwhotheyareisamatterfordebate.Officially,someonewhogetslessthan60%ofthemedianincomecountsaspoor,butpeopletakeaharsherview.Whenasked,halfsaythatthosewithenoughtoeatandliveonarenotpoor,eveniftheycan'taffordanythingelse.Whoeverthepoorare,Britonscarelessabouttheirplightthantheydid20yearsago.AccordingtotheBritishSocialAttitudesSurvey,publishedonJanuary23rd,morenowsaythepoorhaveonlythemselvestoblame.Theunemployedareparticularlyvilified:“lazinessorlackofwillpower”gotthemwheretheyaretoday,accordingtothreeBritonsinten.Perhapsthisshiftstemsfromafeelingthattheincreaseingovernmentspendingonthepoorhasgonefarenough?Infact,policyappearstohavefollowedopinion,ratherthanshapedit.Mostextracashhasgonetochildrenandpensioners,bothregardedascomparativelydeserving(seechart).Unemploymentbenefithasfallenbehind—andquiterighttoo,isthegeneralsentiment.TheproportionofBritonswhoputthejoblessnearthefrontofthequeueformoretaxpayers'moneyhasplummetedoverthepasttwodecades,fromathirdto7%.Heartshavehardenedaslivingstandardshavesoared.Two-fifthsnowsaytheyarelivingcomfortably;just14%saytheyhavetroublemakingendsmeet,downfromaquarterin1986.Thatmeansfewerseepovertycloseup—andsomeofthehostilitytowardsthepoordoesseemtostemfromignorance.Onlytwo-fifthsthinkachildlessunemployedcoupleonbenefitsarepoor—butwhentoldthattheygetonly£88($172)aweekafterhousingcosts,thisnearlydoubles.Beliefsaboutthecharacteristicsofthoseinpovertyhavealsochanged.Thisispartlybecausethepoorhavetoo:thosewhoarestillpoorafterarisingeconomictidehasliftedmostboatsarethosecarryingtheheaviestcargo.Afurthertwodecades'experienceofthewelfarestatehasleftmorepeoplecynicalabouttheperverseincentivescausedbythesocialsafetynet:almostallBritonsnowbelievethatmanyjoblessarebenefitcheats,andmorethanhalfthattoo-generoushand-outshaveputthemofffindingjobs.Asmillionsofimmigrantshavebeeneffortlesslyabsorbedbyabuoyanteconomy,theexcusethattherejustaren'tanyjobsseemslame.ThisnewlackoffellowfeelingmarksBritainoutfromcontinentalEurope,saysPeterTaylor-Gooby,wholedtheanalysisofthedata.HespeculatesthatBritain'swinner-takes-allvotingsystemmakesitspolitics“sharper-edgedandcruder”thanelsewhere,hardeningsocialattitudes.Whateverthecause,though,whatBritonsknow,orthink,aboutpovertyhaschangedlessthanwhattheywantdoneaboutit.Moststillsaysocietyistoounequalandthatordinarypeoplegettoolittleofthenation'swealth.Butincreasinglytheyfeelthatpovertyisnotthegovernment'sproblem—ortheirs.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nBritainandEuropePush-pullJan24th2008FromTheEconomistprinteditionEuropestilldividesallthreemainparties—againstthemselvesALTHOUGHmostBritonsprefertoignoreit,theEuropeanUnion(EU)hasplayedamomentousroleintheircountry'srecentpast.RowsoverEuropehelpedtobringdowntwoConservativeprimeministers:MargaretThatcherandJohnMajor.Labourwassimilarlyrivenuntilthelate1980s,whenpro-Europeansbegantodominate.Thelasteconomicblowtoshapepolitics(Britain'sforcedexitfromtheexchange-ratemechanismin1992)wasofEuropeanorigin;thedebateonjoiningthesinglecurrencyhungoverLabour'searlyyearsinpower.TheshadowcastbyBrusselsislengtheningoverGordonBrown'spremiership.OnJanuary21sttheHouseofCommonsbeganwhatmaybe20daysofdebateontheEUreformtreaty.SignedinLisbononDecember13th,itsucceedsthedraftEUconstitutionthrownoutbyreferendumsinFranceandtheNetherlandsin2005.ThatParliamentisratifyingitratherthanvotersisitselfcontroversial:thegovernment,ledbyTonyBlairatthetime,promisedareferendumontheconstitutionin2004.TheConservativesregardtheLisbontreatyasdifferentonlycosmeticallyfromtheoriginalconstitution,aviewsharedbytheEuropeanScrutinyCommitteeintheCommons.OnJanuary20ththeForeignAffairsCommitteeweighedinwiththeviewthatitsforeign-policyprovisionsarenearlyidenticaltothoseintheconstitution.Mostvoterswantthepromisedplebiscite,asdosomeLabourbackbenchers—18ofwhomsignedanamendmentthatisexpectedtobeputtoaCommonsvote.Thegovernment,knowingthatthetreatywouldalmostcertainlybethrownoutwereitputtothepublic,makesmuchofthefactthatitamendsratherthanreplacesprevioustreaties,andsoneednotbe.FurtherenlargementoftheEU,whichtheToriessupport,requirestheinstitutionalreformscontainedinthetreaty,ministerssay.RejectingadocumentthatotherEuropeannationsregardasgallinglygeneroustoBritain(MrBlairnegotiatedvariousopt-outs,thoughtheirdurabilityisquestioned)couldevenforceashowdownoverBritishmembershipoftheEU—anespeciallyunwelcomeprospectatatimewhenBritainisrelyingonEUsupportinitsfraughtrelationswithRussia(seearticle).Thetreatyislikelytoberatifieddespitethesmallbackbenchrebellion.Buteveniftheimmediatedifficultypasses,Europeremainsathornyissueforallthreemainparties.LabourMPs,mostlygoodEuropeans(byBritishstandards,anyway)underMrBlair,areaccusedofindecisionandambiguityunderMrBrown,astheirpro-EuropeaninstinctscollidewiththefearofalienatingalargelyEuroscepticelectorate.Attemptingtosquarethiscircleledtotheprimeminister'sclumsyhandlingofthetreaty-signinglastyear(heturnedup,buthoursaftertheofficialceremony).TheTories,fortheirpart,arenowanalmostexclusivelyEuroscepticparty;EurophilegrandeessuchastheformercabinetministersKennethClarkeandMichaelHeseltinehavefewheirs.ButLabourhopestodriveawedgebetweentheparty'smoderateEuroscepticsandradicalswhomayultimatelyfavourwithdrawingfromtheEUentirely.SeniorToriesareconfidentthatthepartywillremainunitedduringtheCommonsdebates.ButmanyofthehardlinersareyoungMPs,sothefissuresmayendure.EuroscepticpolicieshavealreadytrippeduptheToryleader,DavidCameron:hispledgein2005towithdrawfromthemaincentre-rightgroupintheEuropeanParliamenthasnotyetbeenfulfilled,andheisstrugglingtosayexactlywhataTorygovernmentwoulddoaboutthetreatyifithadalreadybeenratified.TheLiberalDemocratsarethemostunitedontheissue.FewareEurosceptic,thoughVinceCable,theirtreasuryspokesman,ismorecautiousthanmost.Buttryingtoreconciletheirpro-Europeaninstinctswiththeirdemocraticvaluesforcesthemintoawkwardpositions:theyopposeareferendumonthetreatybutproposeoneonEUmembership,somethingmostBritonswishtopreserve(seechart).Theirchallengeistopersuadewaryvotersthattheparty'sEurophileenthusiasmhas\nlimits.NickClegg,theirleaderandaformermemberoftheEuropeanParliament,isexpectedtotalkmoreaboutreformingBrusselsthanhispredecessors,andtheterm“federalist”isbeingjettisoned.AsBritonsofallpoliticalstripesargue,duckandditheronEurope,however,theimpatienceoftrueEUbelieversinBrusselsisfastincreasing(seearticle).Timeandtreatieswaitfornoman.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nNorthernIrelandTheoldorderchangethJan24th2008|BELFASTFromTheEconomistprinteditionWhatnextforIanPaisley?ITWASnevergoingtobeeasyfortheRevIanPaisleytosellpower-sharingtotheDemocraticUnionistParty(DUP)heleads.Therewardforco-operatingwashigh:MrPaisleywasmadefirstministerofNorthernIreland'sAssembly.Butsowastheprice.Thesightofhimchattingandlaughingwiththedeputyfirstminister,MartinMcGuinness,SinnFein'schiefnegotiatorandaformerleaderoftheIRA,turnsthestomachsofMrPaisley'sfollowers.OnJanuary18thMrPaisleysteppedawayfromthehelmofthechurchhefounded.After56yearsheisrelinquishingtheleadershipoftheFreePresbyterianChurch(whichlaunchedhispoliticalcareer)tohisdeputy.Someseeinthisspiritualresignationsignsoftemporalweakness.MrPaisleyhasbeensappedbyageandbyslow-burningresentmentathisnewpolitics.Hischurchmembershavelongbeenhismostfaithfulfollowers,andwhenhisretirementwasannouncedlastSeptember,churchofficialssaidtactfullythatbeingfirstministerwasjobenoughforanyoctogenarian.Inreality,hejumpedbeforebeingpushedbyacongregationwhofeltbetrayedwhentheirleaderabandonedalifetime'sintransigence.Hisholdonhispartyissomewhatfirmerbut,althoughnoimmediaterebellionislikely,somesuspectthattheDUPmaybecontemplatingpost-Paisleypolitics.CompoundinghistroublesarethemisjudgmentsofasonwhosecareerMrPaisleyhasnurtured.OnJanuary15thcameallegationsthatIanPaisleyjunior,amemberoftheStormontAssembly,hadusedthepower-sharingtalksthatgothisfatherthetopjobinNorthernIrelandtolobbyforbusinessinterestsinhisNorthAntrimconstituency.JimAllister,amemberoftheEuropeanParliamentandadisaffectedex-memberoftheDUP,publishedaletterfromtheBritishgovernmentdatedOctober13th2006—thelastdayofthenegotiations.SignedbyaministerattheNorthernIrelandOffice,itwastitled“RequeststotheGovernmentfromIanPaisleyJr.”andbegan:“ThePrimeMinisterhasconsideredyourrequestsandhasagreedthatweshouldtrytorespondpositively.”TheyoungerMrPaisley'srequestsappeartohavebeenratherpetty,consideringthemomentousoccasiononwhichtheyweremade.Theyincludedmoneyforamotorcyclingeventinhisconstituency,improvementstoalocalroadandsupportfortwobuildingprojectsinvolvingSeymourSweeney,abusinessmanandDUPmemberforwhombothPaisleyshavelobbied.Althoughlittleprogressonanyofthesepetprojectsisapparent,MrAllisteraccusesMrPaisleyjuniorofshiftingthefocusofnegotiationsfrommatterscentraltounioniststolesserconstituencyconcerns.TheDUPpromptlyassertedthattherequestswereneitherapprovedbyitsofficersnorpartoftheirnegotiations.Paisleyminorsaidhewasguiltyonlyof“eagerness”onbehalfofconstituentsbutapologisedifhehadembarrassedtheparty.OnJanuary19thheblurtedoutinaradiointerviewthatPeterRobinson,theparty'sdeputyleader,wouldeventuallybecomeleader.ThislentcredencetoareporttwodaysearlierintheIrishTimes(dismissedbyapartyspokesman)thattheDUP'seightMPshaddiscussedthesuccession,andthathisfatherwouldretireasanMPnextyear.Whateverhappens,perhapsthePaisleypaterfamiliasshouldbecontentatpullingoffanotherwise-unsellablepoliticaldeal.Asfordynasty,handinghisWestminsterseattohissonmayhavetosatisfybothofthem.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nReformingthepoliceBoysinblueheadintotheredJan24th2008FromTheEconomistprinteditionPolicefundingfacesasqueeze.ThatmaynotbesobadITWAStheworld'smostorderlydemonstration.OnJanuary23rd,22,000policeofficersmarchedthroughLondontoprotestagainstthegovernment'sdecisionnottobackdateanewpaydeal.Some150colleaguesintheMetropolitanPolicesupervisedthemarchwhileahelicopterhoveredabove,policingthepolicingofthepolice.Thegovernment'streatmentofpoliceofficers,whoareforbiddentostrikeandthereforeeasytobully,isunfair.Yetrecentlythepoliceservicehasdoneratherwell:fundingisupbyaquarterinrealtermssince2001,makingitthehighestintheOECD.Despitethissplurge,however,thepublicstilldoesnottrustthegovernmentmuchoncrime(seecharts).Pollsshowthatlawandorderisabiggerworrythanitwasadecadeago,eventhoughmostcrimehasbeenfallingandtherearemorepolicementhanever.Invisibilityisoneproblem.Althoughthereare18,000moreofficersthanin2000,only15%oftheirtimeisspentonpatrol.Theyhavealsobeennibblingaroundtheedgesofcrime.Thenumberofoffendersbroughttojusticehasgoneup,butmuchofitisdowntowilycoppersmeetingtargetsbydishingoutwarningsforcannabispossession,drunkennessandthelike.Individually,policemendon'tdetectanymorecrimesthantheydidbeforethegovernment'sspendingspree;instead,theextramoneyhasmeantthateachdetectioncoststhetaxpayer10%more.AsLabourhasfoundwithotherpublicservices,itisbettertoreformbeforespending.Nextmonthawide-rangingreportcommissionedbythegovernmentwillcomeupwithvarioussuggestions.Butreformingthepoliceishard.Controlofeachforceissplitbetweencentralgovernment,thechiefconstableandalocalboardofworthies.Thereisnonationalpolicecommand,butarangeofbodiesrepresentingdifferentofficersandinterests.Aplantoamalgamatethe43forcesinEnglandandWalesinto13biggerjurisdictionsranagroundin2006,andnoonehasdaredtotryanythingsoradicalsincethen.Povertycouldchangethat.Afteryearsofplenty,leanertimeslieahead:inOctobertheTreasuryannouncedanincreaseinpolicefundingof4.7%,wellbelowthe8%thatpolicechiefshadrequested.BobJones,chairmanoftheAssociationofPoliceAuthorities,fearsthatshortfallscouldleadtoalossof6,000officers.Oneconsequenceisthatforcesmayendupworkingmorecloselytogetherafterall.Amalgamationisunlikely(smallerforcestendtoopposeit),butsomearealreadycollaboratingtosavemoney.EssexandKentaredevelopingajointstrategiccommandfortheirports;fourYorkshireforcesarerunningapolicyunitforundercoverofficers.GavinLockhartofPolicyExchange,aresearchoutfit,arguesthatsuchcollaborationhelpstotackleseriouscross-bordercrimeaswellassavemoney.Furtherefficienciescouldbefoundinspecialisation.Higherpayforofficerswhofocusongangs,say,ordrugs,wouldhelpforcesgetmorebangfortheirinvestment,accordingtoGuyLodgeoftheInstituteforPublicPolicyResearch,anotherthink-tank.Thedemandsonconstablescouldbeeasedfurtherbymakingmoreuseofcivilianstaffonthefrontlines,gatheringevidence,providingsupportforvictimsandsoon,hesuggests.\nFartherdownthisroadliesthethornierquestionofprivatisation.Privately-runprisonstendtoscorelowerthanthoserunbythestate,asdoprivateimmigration-removalcentres.MrLockhartreckonsthatprivatefailuresaredowntobadprocurement,andhighlightssuccessfulexamplessuchastheSussexpolice,whocontractedoutsomeoftheirguardworkandseemhappy.Suchventuresarelikelytogrowmorecommonasforcesscrimp.Lessclearishowtighterfiscaltimeswillinfluencethegovernment'sthinkingonintroducinglocalaccountabilitytopolicing.TheTorieswantelectedsheriffstocalltheshots;othersworrythatthiswouldleadtopopulism.Sofarthegovernmenthasnotrushedtodevolvemuchpowertolocalauthorities,but,giventhepolls,crimemightbeanissuethatitwouldbegladtooffload.Whateveritchooses,itseemsthatsofarlawandorderisnotarealmwheremoneycanbuypublicsupport.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nMedicalcarePayingadeadlypriceJan24th2008FromTheEconomistprinteditionUniformpayintheNHScostslivesTHEREarefewthingsthatincensetheBritishmorethanthenotionthatthequalityoftheirmedicalcaredependsonwheretheylive.Fearofa“postcodelottery”helpsexplainwhytheNHSremainssocentralised,despitefrequentcallsformorelocalsay.Yet,asresearch*publishedonJanuary22ndshows,centralcontrolhasfosteredtheverypostcodelotteryitwassupposedtoavoid.ThestudyinvestigatestheimpactonmedicalcareofimposingvirtuallyuniformpayratesintheNHSthroughoutEngland,eventhoughwagesintheprivatesectorvarywidelyamongregions.Theresearchers—EmmaHallandCarolPropperofBristolUniversity,andJohnVanReenenoftheLSE'sCentreforEconomicPerformance—lookathowthisaffectsthecalibreofnursingstaffratherthanthatofdoctorsbecausenursesaremorelikelytoseekotherjobsiftheyaredissatisfiedwiththeirpay.IninnerLondon,wherethecostoflivingishighest,nurseswerepaidonly10%morethanthenationalrateintheperiodfrom1996-97to2001-02(themostrecentwithcomprehensivefigures).Yetfemalenursescanalsoworkinawiderangeofprivatewhite-collarjobs,aswellasinindependenthospitals.Regionalwagesforsuchworkvarywidely:womenearnedonaverage65%moreininnerLondonthaninthenorth-east.ItsrigidpaypolicymakesiteasyfortheNHStorecruitandkeepgoodnursesinpoorernorthernregionsbuthardtohireandretainthemintherichersouth.Hospitalsinthenorthgainfromamorestablepoolofnurses.Southernoneshavetoleanontemporaryagencynurses,whocanbepaidmorebuttendtobelessexperienced,lessfamiliarwiththehospitalandlessproductive.Dosouthernpatientssufferasaresult?Theeconomistslookattheproportionofpatientsaged55ormore,admittedtohospitalafteraheartattack,whodiewithin30days.Theyfindastronglinkbetweenthisratioandlocalprivate-sectorwages.Thehighertheprivatewage,makingithardertogetgoodnursesintheNHS,thehigherthedeathrate:tobeprecise,iftheprivatewageis10%higherinoneareathananother,thedeathrateis4-5%higher.Nurseshavebeenawardedbigpayincreasessince2001-02,andthishaseasedstressesinthesouth.Theyarelikelytore-emerge,however,aspayisrestrainedintheleanyearsahead.Andnationalpaybargainingdominatesthepublicsector.Stateschoolsinrichregionsfindithardtorecruitgoodstaff,forexample:teachersonnationalpayscalesprefercheaperplacestoLondon,especiallyoncetheyhavechildren.RegionaldifferencesinprosperityhavewidenedunderLabour,whichmakesitmoreimportantthatthegovernmentstoptreatingthecountryasifitwereeconomicallyuniform.Ratherthaninsistingonthree-yearwagedeals,itshouldallowforgreaterregionalvariationsinpublic-servicepay—areformthatGordonBrownbackedattheTreasurybutnevercarriedthrough.*”CanPayRegulationKill?”,byEmmaHall,CarolPropperandJohnVanReenen.CentreforEconomicPerformance.January2008.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nIdentitycardsDead,orjustsleeping?Jan24th2008FromTheEconomistprinteditionIdentitycardsforallrecedeintothedistancePARToftheappealofconspiracytheoriesisthattheyareperverselyreassuring,portraying,astheydo,anomniscientgovernmentimmunetoerror,forgetfulnessandotherhumanfrailties.Sadly,astringofembarrassingindiscretionsinvolvingcitizens'personaldatahaveremindedBritonsthat,intherealworld,governmentsareflawed.NowthosesamedataleaksthreatenLabour'sambitiousschemetogiveeveryoneanidentitycard.OnJanuary23rdtheConservativesshowedleakedHomeOfficepaperssayingthatBritonswouldbeissuedwithIDcardsfrom2012,twoyearslaterthantheoriginaltargetdate(foreignnationalswillrequireIDcardsfromthisyear,asplanned).Byitself,thatmayseemunsurprising.Thecardsandthedatabasetopowerthem(atatotalcostof£5.4billion)willbethemostcomplicatedintheworld.Upto49differentpiecesofinformationwillbestored,fromirispatternsandfingerprintstodatesofbirthandpastaddresses.Someofthosedatawillbesharedbygovernmentdepartmentsandcouldpotentiallybeusedbyprivatefirmsaswell.Giventhegovernment'sspottyrecordonbigcomputerprojects,delayswouldshocknoone.Puttingofftheintroductionofidentitycardsuntilafterthenextelection,whichmusthappenbyMay2010,wouldalsoremovethechanceforembarrassingmishapsintherun-uptothepolls.Onrecentform,thatwouldbewise.InNovembertaxofficialsdentedthegovernment'sdata-securitycredentialswhentheyadmittedlosingthepersonaldetailsof25mbenefitclaimants.Morebutter-fingeredexamplesemerged.Theseincludedthedetailsof3mdriverslostinIowa,amisplacedlaptopcontaininginformationaboutpotentialarmyrecruitsandreamsofpaperworkfromtheDepartmentforWorkandPensions—featuringphotocopiedpassports,mortgageinformationandbenefitdetails—dumpedonaroundaboutinExeter.Sincethen,supportforIDcardshasbeenmuted.Officialsusedtosaytheywouldbecompulsory—indeed,DavidBlunkett,homesecretarywhenthecardswerefirstmooted,arguedthatvoluntarycardswouldbepointless.ButinaninterviewthismonthGordonBrownhintedthismightnotbethecase.PressedlaterbyDavidCameron,theToryleader,theprimeministerwaslessthanenthusiastic,eventuallysayingthatcompulsionwasforMPstodecide.Civilservantshavebeentight-lippedaboutprogress.Theinformationcommissioner,adatawatchdog,istryingtopersuadeacourttoorderpublicationofagovernmentfeasibilitystudy,andanassessmentofprivate-sectorusesforthecardshasyettoseedaylight.Somearebeginningtosmellaclimb-down.SuchpusillanimitypleasesopponentsofIDcards,manyofwhomseedisadvantagesbeyonddataleaks.Somefretaboutthecost;otherssaythatnocoherentcaseforcardshasbeenmade(justificationsvaryfrompreventingterrorismandpolicingimmigrationtoforestallingbenefitcheatsandthwartingidentitythieves).AndalthoughBritonsarealreadyamongthemost-watchedpeopleintheworld,IDcardsareasteptoofarforsome.NickClegg,theLiberalDemocratleader,hassaidthathewouldgotojailratherthancarryone.Judgingbyopinionpollsandwidelycirculatedpledgestodisobey,asignificantfractionofhiscountrymenfeelthesameway.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nBagehotIntheredcornerJan24th2008FromTheEconomistprinteditionAhiddencompliment,andabigquestion,inBritain'sfall-outwithRussiaIllustrationbySteveO'BrienREDisthecolourof“FromRussia”,araucousnewexhibitionattheRoyalAcademyofArts.ThedresswornbyaRussianpeasantwoman,theroofsinafuturisticMoscow,thequizzicalhorseriddenbyaleanRussianyouthandChagall's“RedJew”allblazered.Thecolourencapsulatesmanyoftheexhibition'sthemes:redisforOrthodoxiconographyandSovietpower,andforblood.Themaintheme,however,isRussia'sperpetual,complexdanceofenvyandemulationwiththeWest.TheshowchroniclesRussianavant-gardepainters'eccentricreactionstoFrance,buttheexhibitionitselfispartofRussia'sangryyetenamouredtangowithanothercountry:Britain.Bypost-cold-warstandards,Anglo-Russianrelationsarenoxious—sobadthatforawhileitseemedthat“FromRussia”mightbecancelled.Thoughtheshowwenton,Britishdiplomatsworrythattherelationshipmightbreakdownaltogether,wereRussia'sbyzantineinternalpoliticstomakethatuseful.Beneaththeiciness,however,liesakindofcompliment—andaquestionaboutBritain'splaceintheworld.SnowontheirManoloBlahniksInDecembertheRussiangovernmentorderedtheBritishCouncil,whichpromotesBritishcultureandeducationabroad,tocloseitsofficesinStPetersburgandYekaterinburg.Thismonth,whentheBritishrefused,theRussianauthoritiesaccusedtheheadoftheStPetersburgofficeofdrivingoffences,andsubjectedthecouncil'sRussianstafftosecurity-serviceinterviewsandnocturnalvisitsfromthetaxpolice.Thoughallegedirregularitiesaresometimescited,RussianofficialshavealsolinkedtheirbullyingtotheexpulsionofRussiandiplomatsfromLondoninJuly2007—itselfanafter-effectofthemurderofAlexanderLitvinenkobyradioactivepoisoninginLondonin2006.WhatthefrictionsaysaboutRussia'sdisregardforinternationalnicetiesisplain.ButwhatdoesitsayaboutBritain?ThoughothercountrieshavefallenoutwithRussiainitsoil-fuelled,Putin-erapomp,theKremlinhasbeenparticularlyroughwithBritain.EvenbeforeLitvinenko,theestimableBritishambassadorwasharassedbyaKremlin-backedyouthgroupandtheBBCobstructed.Inearly2006theFSB,successortotheKGB,bizarrelyusedatelevisionprogrammetoaccuseseveralBritishdiplomatsofespionage.ThehostilitystemspartlyfromthepoliticalasylumBritaingavearenegadeRussianoligarch\nandaChechenseparatist,whofollowedpre-revolutionaryradicalsandpost-revolutionaryWhitesbyseekingsanctuaryinLondon.Buttheexplanationisdeeperandmorecomplicatedthanthat.FromtheCrimeanwarthroughtusslesinPersia,AfghanistanandTibet,theBritishempirewastheoldRussianempire'smainrival.Britain'snavyhasbeenadmiredinRussiasincePetertheGreatlearnedshipbuildinginLondonin1698(andtrashedthehousehestayedin).BritishspiesaredistrustedbutrespectedbytheirRussiancounterparts(witnesstheheadoftheFSB'srecentwildclaimsaboutBritishplanstodismemberRussia).Britain'spoliticalinstitutions,meanwhile,havealwaysbeenreveredbyRussianliberals.ThoughFranceandGermanyinvaded,andAmericaisthehyperpower,emotionallyBritainisstillthenaturalpowerformuscle-flexing,neo-SovietRussianstoconfront—evenifBritain'simperialgrandeurisasoutdatedasthepea-soupfogsthat,accordingtoRussiantextbooks,stillengulfLondon.Itisn'tonlypolitics.Russia'sartiststurnedtoFranceforinspiration,butits19th-centuryaristocratstooktheirideaofeaseandindependencefromBritainanditscountryhouses.Theirpost-Sovietequivalentshaveoptedtobuytheoriginals:thenewRussianrichthrongLondon'sposhestpostcodes,restaurantsandartgalleries.Theirchildren(includingthoseofnationalisticministersandapparatchiks)attendBritain'sbest-knownschoolsanduniversities.Friendlytaxrates,reliablebanksandcourts,andtheLondonStockExchange—onwhichmanyRussianfirmshavefloated—arepartoftheappealtoo,ofcourse.TheRussianshaveexposedanoldtruth:amiddlingamountofmoneyseemsvulgar,butalargeamountofmoneyopensalmostalldoors.TherearehundredsofthousandsofordinaryRussiansinBritaintoo:applicationsforBritishvisasarerisingby20%ayear.Theflamboyanceofitsexpats,andculturalexportssuchas“FromRussia”andthesensationalsopranoAnnaNetrebko(wowingaudiencesattheRoyalOperaHouse),havegiventhecountryanunprecedented,andmostlypositive,profileinBritain.Sothetensionseemsodd.ButtheremaybealinkbetweentheKremlin'sanathemisationofBritainandthatcountry'spopularity.WhatseemstohaveangeredRussiansparticularlyabouttheLitvinenkoimbroglioisthetighteningofthevisaregimeforofficialvisitorsthatresulted;loosenit,theynowsay,andwecantalk.SomepeoplemaybepunishingBritain,inotherwords,preciselybecausetheyarefondofit.OnewayoranotherthiscontradictoryRussianattitude—inequalpartsresentmentandesteem—isatestimonytoBritain'sopennessanddynamism,andtoahistoricalrenownthatisstillanimportantasset.Somuchforthecompliment:thequestioniswhetherandhowmodernBritaincanrespondtothemenacethatalsocomes“FromRussia”,andindeedtootherbigthreats.DavidMiliband,thenabrand-newforeignsecretary,wasrefreshinglyrobustovertheLitvinenkoaffairlastyear.ThistimeheconfinedhimselftodenouncingRussia's“blatantintimidation”as“notworthyofagreatcountry”.ThathasmanagedtoirktheRussians(“neo-colonial”,theysay)withoutinfluencingthem.Thetruthisthat—forallitsreputeinRussiaandbeyond—BritainbyitselfcandolittletoswaytheKremlin.ItsEuropeanpartnershavespokenupabit;butthelessonforGordonBrownespeciallymaybethatifBritainistopunchaboveitsweight—andresistthepunchesthatcomeback—itneedstoshowlesscoldshoulderandmorecollegialrespecttothecountrieswhoreallyareitsfriends.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nEnvironmentanddevelopmentHowgreenistheirgrowthJan24th2008FromTheEconomistprinteditionPanosAnewargumentthateconomicprogresscanhelptoeaseenvironmentalwoes,justsolongasthegovernanceisgoodtooGetarticlebackgroundCANpoorcountriesaffordtobegreen?Thatisaquestionwhichpoliticiansinthedevelopingworldhaveoftenaskedratherpointedly.Tothem,itseemsthattheobsessionofsomerichtypeswithpreservingforestsandsavingcuddlyanimalslikepandasorlemurs,whilepayinglessattentiontothehumanbeingslivingnearby,isbothcynicalandhypocritical.Thereis,ofcourse,plentyofevidencethatgreeneryandgrowtharenotpolaropposites.AfterdecadesofexpansioninChinaandotherfast-emergingeconomies,someofthenegativeside-effectsandtheirimpactonhumanwelfare,aboveallthedeathtollcausedbyfoulairandwater,arehorriblyclear(seearticle).Yettherelationshipbetweengrowthandthestateoftheenvironmentisfarfromsimple.SomenewlighthasbeencastbyateamofresearchersledbyDanielEstyofYaleUniversity,whodeliveredtheirconclusionsthisweektotheWorldEconomicForuminDavos,Switzerland.WhattheypresentedwasthelatestannualEnvironmentalSustainabilityIndex,whichgradesthe“environmentalhealth”of150countries—usingmanyindicators,frompopulationstressandeco-systemhealthtosocialandinstitutionalcapacity.Thisyear'sreportfocusesonthelinkbetweenthestateoftheenvironmentandhumanhealth.Inanutshell,whatthenewreport(alsosponsoredbytheEuropeanCommissionandColumbiaUniversity)suggestsisthatpoorcountrieshavebeenquiterighttochallengethesortofgreenorthodoxywhichrejectstheveryideaofeconomicgrowth.Indeed,thesinglebiggestvariableindeterminingacountry'srankingisincomeperhead.Butthatdoesn'timplythateconomicgrowthautomaticallyleadstoanimprovementintheenvironment.Theteam'sfindingisthatgrowthdoesoffersolutionstothesortsofenvironmentalwoes(localairpollution,forexample)thatdirectlykillhumans.Thismatters,becauseaboutaquarterofalldeathsintheworldhavesomelinktoenvironmentalfactors.Mostofthevictimsarepoorpeoplewhoarealreadyvulnerablebecauseofbadlivingconditions,lackofaccesstomedicine,andmalnutrition(seearticle).Amongthekillers(especiallyofchildren)inwhichtheenvironmentplaysarolearediarrhoea,respiratoryinfectionsandmalaria.Thesediseasesreinforceaviciouscircleofpovertyandhopelessnessby\ndepressingproduction.AccordingtotheWorldBank,theeconomicburdenonsocietycausedbybadenvironmentalhealthamountstobetween2%and5%ofGDP.MrEsty'sanalysissuggeststhataspoorcountriesgetricher,theyusuallyinvestheavilyinenvironmentalimprovements,suchascleaningupwatersuppliesandimprovingsanitation,thatboosthumanhealth.(Theireconomiesmayalsoshiftgear,frommakingsteelorchemicalstoturningoutcomputerchips.)Butthelinkbetweengrowthandenvironmentallybenignoutcomesismuchlessclear,thestudysuggests,whenitcomestothesortofpollutionthatfoulsupnature(suchasacidrain,whichpoisonslakesandforests)asopposedtodirectlykillinghumanbeings.Thekeytoaddressingthatsortofpollution,MrEstyargues,isnotjustmoneybutgoodgovernance.Acloserlookattherankingsmakesthisrelationshipclearer.OfcourseitisnosurprisethatSwitzerlandfaresbetterthanNiger.ButwhyisthepoorDominicanRepublicmuchhealthierandgreenerthannearbyHaiti?OrCostaRicasofaraheadofNicaragua,whosenatureandresourcesarebroadlysimilar?AndwhyiswealthyBelgiumthesickmanofwesternEurope,withanenvironmentalrecordworsethanthatofmanydevelopingcountries?Amixtureoffactorsrelatedtogoodgovernment—accuratedata,transparentadministration,lackofcorruption,checksandbalances—allshowaclearstatisticalrelationshipwithenvironmentalperformance.Amongcountriesofcomparableincome,MrEstyconcludes,toughregulationsandaboveall,enforcementarethekeyfactorsinkeepingthingsgreen.Allthismaybeahelpfulwayoflookingatpollutionintheclassicsense,butthereisanotherfactorthatmayupsetallpreviouscalculationsabouttherelationshipbetweengrowthandthestateoftheearth:climatechange.Greenhouseemissionsdonotpoisonpeople,orlakesorwoods,inthedirectorobviouswaythatnoxiouschemicalsdo.Butatleastinthemediumterm,theyclearlyaltertheearthinwaysthatharmthewelfareofthepoor.PaulEpsteinoftheHarvardMedicalSchoolsaystheimpactbothonnatureanddirectlyonhumanityofglobalwarmingwillswampallotherenvironmentalfactors.Asalterationsintheclimateleadtomassmigrations,epidemicswillspread;astemperatezoneswarmup,tropicaldiseaseslikemalariawillsurge;stormswilloverwhelmsewersystems;heatwaveswillpushozonelevelsup.Hemayberight,butheretooeconomicgrowth,coupledwithgoodgovernance,mayyetprovetobeasourceofsolutionsratherthanproblems.Atthemoment,perhaps2billionpeoplehavenoformalaccesstomodernenergy—theymakedowithcowdung,agriculturalresidueandothersolidfuelswhicharefarfromhealthy.Unlessforesightandintelligenceareappliedtothesatisfactionofthesepeople'sneeds,theymayembracethefilthiestandmostcarbon-emittingformsoffossil-fuelenergyassoonastheygetthechance.Amixtureofeconomicgrowthandtransparentgovernancemayoffertheonlychanceofavoidingthatdisaster.Indeed,everyonewillgainifpoorcountriesfindawaytoleapfrogoverthephasesofdevelopmentwhichinsomanyotherplacesdidterribleharmtotheenvironment.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nTheVaticanandIslamAflusteredflockofpigeonsJan24th2008FromTheEconomistprinteditionHowtotalktoMuslims(andothers);CatholicsseemunsureGetarticlebackgroundWHEN138MuslimscholarssentanopenrequesttoleadersoftheChristianworld,fromCatholicstoMethodists,foratheologicaldialogue,theyknewtheyweresettingacatamongthepigeons.ItwasafairbetthatseniorChristianswouldsoonbelookingovereachother'sshoulders,anxiousnottobetooliberalortooharshintheirreply.Andsomethinglikethathashappened.America'sSouthernBaptistshaveblamedmainstreamProtestantsforrespondingtoowarmly;andeventheusuallywell-organisedCatholicshavebeenlessthanco-ordinated.TheVatican'spointmanoninter-faithrelations,CardinalJean-LouisTauran,initiallysawlittlescopefortalkingtoMuslimsabouttheology.ButPopeBenedictXVIlateragreedtoreceivesomeoftheMuslimsignatories.Thatprocesswillstartsoon.EasilytheboldestCatholicresponsetotheMuslimletterhasbeenanessaybyanAustralianJesuitscholar,DanielMadigan,publishedthismonth.HetookseriouslytheMuslimideaofadialoguebasedonthecommandsofJesusofNazarethtoloveGodandoneanother.Importantasthesecommandswere,theywerenotthebasisoftheChristianfaith:God'sloveformanwasamorebasicpoint,theJesuitargued.Butforallhisquibbles,hedidengagewiththeMuslims'theologicalviewsinearnest.AsthelargestoftheCatholicchurch'sreligiousorders,theJesuitsliketotestthelimitsofdialogue.Beforehisdeathin2004,aJesuitpioneerofCatholicthinkingonHinduism,JacquesDupuis,sufferedmanyscoldingsfromtheVatican'sdoctrinalenforcer:thencalledCardinalJosephRatzinger;nowpope.TheJesuits'newsuperior-general,electedthismonth,alsoexemplifiestheorder'sbeliefinliving“atthefrontiers”ofculture:likeanotherrecentholderofthatoffice(whofelloutbadlywiththeVaticanbigwigs),AdolfoNicolásisaSpanishexpertonJapan.Hetakesofficeininterestingecumenicaltimes.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nMalnutritionThestarvelingsJan24th2008FromTheEconomistprinteditionHungerhasanevenbiggerimpactonchildren'shealththanwasthoughtBADAAMlivesintheIndianprovinceofRajasthan.Tetanuskilledoneofherchildrenininfancy;anotherisweakfromdiarrhoea,causedprobablybythecustomofkeepingmotherandbabyisolatedforamonthafterbirth.Yetsheisoneoftheluckyones:acharity,SavetheChildren,hasbeenkeepingherfamilyalivewithfoodandnutritionaladvice.Unicef,theUnitedNations'children'sagency,saidthisweekthatfewerthan10mchildrendiedbeforetheirfifthbirthdayin2006—probablythelowestrateever,andcertainlythesmallestnumbersincerecordsbeganin1960,whentwiceasmanyunder-fivesdied,outofaworldpopulationhalftoday'slevel.Goodnews—butitcouldhavebeenstillbetter.Malnutritionisbyfarthebiggestcontributortochildmortality,presentinhalfofallcases,saystheWorldHealthOrganisation.NewresearchintheLancet,aBritishmedicaljournal,suggestsitmaybeoneofthe“bigbillsleftonthesidewalk”—toborrowthephrasethatMancurOlson,aneconomist,usedfordescribingeasilyreapedbutneglectedbenefits.Onepaper,byRobertBlackofJohnsHopkinsUniversityandothers,reckonsunderweightbirthsandinter-uterinegrowthrestrictionscause2.2mchilddeathsayear(aroundoneevery15seconds).Poorornon-existentbreastfeedingexplainsanother1.4m.Otherdeficiencies—lackofvitaminAorzincforinstance—accountfor1m.Inall,thatis3.5mdeaths(onceyoustripoutdoublecounting)—one-thirdoftotalchildmortality.Hungercausesdiseaseaswellasdeath.AccordingtotheLancet,malnutritioninthefirsttwoyearsisirreversible.Malnourishedchildrengrowupwithworsehealthandlowereducationalachievements.Theirownchildrenalsotendtobesmaller.Previousestimatesofhunger'simpactwerehigher,buttheytreateditassomethingwhichexacerbatestheproblemsofdiseasessuchasmeasles,pneumoniaanddiarrhoea.Thoseillnesseswereseenasthecausesofdeath;malnutritioncountedasacontributingfactor.Butmalnutritionactuallycausesdiseasesaswell,andcanbefatalinitsownright.ThisistheimpacttheLancetauthorsseektoidentify.OveralltheirfindingsconfirmandquantifytheWHO'sviewthathungeristhegravestsinglethreattotheworld'spublichealth.Buttheydomorethanthat.AstheLancetandUnicefbothmakeclear,dealingwithhungerhardlyrequiresadoctorateinthebiochemistryofthehumanbody.Breast-feedingadvice,foodsupplementsandbetterhygieneallmakeabigdifference.Mostcountriesknowwhattodoandrunpilotprogrammesthatwork.Buttheyrarelyfindthemoneyforfull-scalenationalefforts;theinternationaloutfitsthatmighthelpare,intheLancet'swords,fragmentedanddysfunctional.Yetiftheresearchisright,moneyforimprovingnutritionwouldbethemosteffectivesortofaidaround.Atthemoment,roughly$300mofaidgoestobasicnutritioneachyear,lessthan$2foreachchildbelowtwointhe20worstaffectedcountries.Incontrast,HIV/AIDS,whichcausesfewerdeathsthanchildmalnutrition,received$2.2billion—$67perpersonwithHIVinallcountries(includingrichones).Focusingonnutritionandmortalityalsomakessense,saysAprilHardingoftheCentreforGlobalDevelopment,aWashington-basedthink-tank,becauseitforcespolicymakerstopayattentiontohealth-caresystemsasawhole,ratherthantryingtosavechildren“onediseaseatatime”.Giventhescaleofthecrisis,thecaseforaidorganisationsredirectingmoneyandattentiontotheproblemofhungerlookscompelling.\nCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nMilitaryhelicoptersGettingbootsoffthegroundJan24th2008FromTheEconomistprinteditionChoppersarevital—andhardtofindAPMOVINGtroopsacrosssouthernAfghanistanusuallyinvolvesagiddymountain-huggingflightinatransporthelicopter—preferablyescortedbyameanApacheattackhelicopter.Despitetheriskfromold-fashionedgroundfire,particularlyinnarrowvalleys,arideinachopperisstillbetterthanlandtravelonambush-riddenornon-existentroads.WesternmilitaryoperationsinIraqandAfghanistanwouldbemuchriskier,andprobablyimpossible,withoutthewidespreaduseofhelicopters.NoNATOmeetingpasseswithoutarequestforthealliestosendmorechopperstoAfghanistan.Butevencomparativelywell-equippedWesternforces,suchasBritain's,havebeenstretchedtofindenoughmachines.ThesituationisevenmoreacutefortheUnitedNations.Itspeacekeepersneedthepowerandmobilitythathelicoptersofferinremote,roughplacesbutfinditincreasinglydifficulttobegandborrowenough.TakemeoutofherequickAftermuchdelay,theUNhasstartedtodeploytothebloodiedwildernessofDarfur,inwesternSudan,tobeefupthe7,000AfricanUnionpeacekeepersandcreateahybridforceof26,000troops.Footsoldiershavebeenfairlyeasytofind,butnocountryhasyetprovidedthe18transportandsixattackhelicoptersthattheUNrequested.Withoutsuchairlift,thenewforcemaybeaspowerlessastheoneitreplaces.InneighbouringChadandtheCentralAfricanRepublic,aparallelEuropeanUnionpeacekeepingmissionstruggledtofindchoppersuntilFrance—themaincontributortothemission—reluctantlystumpeduptenaircraft.UNofficialsnowdoubttheycouldlaunchanotherpeacekeepingmissionin,say,Somalia.Isthereareallackofhelicopters,orjusttoolittlepoliticalwill?RichardGowan,ofNewYorkUniversity,notesthatsub-Saharancountrieshavemanywarsbuthardlyanyhelicopters;traditionalUNtroopcontributors,suchasIndia,areclosetothelimitofwhattheycansupply;someWesterncountriessuchasAmericaandBritainareoverstretchedinIraqandAfghanistan;whileothersarereluctanttobecomeinvolvedinfighting,beitcounter-insurgencyortoughpeacekeeping.Americahasthousandsofhelicoptersbutisalreadyworriedaboutitsballooning,billion-dollarbillsforwearandtearonitsmilitaryequipment(andtheadministrationflinchesatthethoughtofmilitaryinvolvementinyetanotherMuslimcountry).EuropeanNATOcountrieshavemorethan1,000transporthelicopters,butstillrelyheavilyonAmericanairliftinAfghanistan.Thatreflectstheoutdateddesignoftheirarmedforces,stillfocusedonterritorialdefenceagainstaSovietinvasion;militaryplansassumeadefinedfrontlinewithrearstagingareassuppliedbyroad.InIraqandAfghanistan,however,therearenofrontlinesandroadconvoyseverywhereareamongthemostvulnerabletargets.Worse,flyinginnewconflictzonesisharderthaninEurope.Helicoptersperformpoorlyinhotweatherandathighaltitude.BothapplyinAfghanistaninsummermonths.Eveninlow-lyingIraq,BritishforcesfoundthattheirLynxhelicopters,designedtocarryadozensoldiers,couldmanageonepassengeratbestduringthesummerheat.AmongEuropeanNATOarsenals,fewhelicoptershavedefensiveequipmentsuchasflaresandchafftodeflectshoulder-heldanti-aircraftmissiles.Helicoptersareexpensiveanddelicatemachinesrequiringheavymaintenance,especiallywhenflyingindustyconditions.Thatmeansthateachaircraftneedsabout30groundcrew,whointurnhavetobe\nprotectedfromattack.Countriesarereluctanttoendangersuchvaluable—andvulnerable—assets,particularlyinuncertainorunpopularmissions.BritainisslowlywithdrawingfromIraq,butfindsitselffightinganunexpectedlyhardcampaigninAfghanistan,whereitformsthesecond-largestforeigncontingent.Inthescrabbletofindmorehelicopters,ithastakenoversixMerlinsearch-and-rescuehelicoptersorderedbyDenmark.Itisalsofixingthecostlybotchedprocurementofeightheavy-liftChinookhelicopters,groundedin2001becausetheycouldnotbecertifiedassafe.OtherbigEuropeanalliesaredeployedinthequietishnorthofAfghanistan,andreluctanttobecomeinvolvedinthefightinthesouth.FranceandItaly,moreover,saytheyareheavilycommittedinotheroperations,forinstanceintheBalkans,insouthernLebanonandnowinChad.ForUNpeacekeeping,Westerncountriesgenerallyprefertosendmoneyratherthantroopsandvitalequipment.ThebulkoftheUN'smanpowercomesfromAsiancountriessuchasIndia,PakistanandBangladesh.IndiaisalreadythebiggestdonorofhelicopterstotheUN,whilePakistanisbusyfightingmilitantsinitstribalareas.“ThesituationwouldchangeovernightifChina,whichisstartingtogetinvolvedinpeacekeeping,weretolendsomeofitshelicopters,”saysMrGowan.AnothersourcemightbeRussia,UkraineandotherformerSoviet-blockcountries,whichhaveplentyofhelicopters,buthavesofarofferedfewofthem.Fornow,theUNmakesuptheshortfallbyhiringprivatefirmstoprovidehelicoptertransport.Suchcommercialaircraftarenotinsuredtoflyincombatzones,eventopickupwoundedsoldiers.ButtheUNislothtohireattackhelicoptersprivately;itwouldseem—horrors—likehiringmercenaries.Yetwhen500UNpeacekeepersinSierraLeoneweretakenhostageinMay2000,itwasnotjustthearrivalofBritishparatroopersthatturnedbacktheadvancingrebels;itwastheunsungactionsofaSouthAfricanmercenary,strafingandrocketingtherebelsfromhisSoviet-madeMi-24“Hind”attackhelicopter.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nTheadvertisingmarketHardsellJan24th2008FromTheEconomistprinteditionReutersAd-spendingusuallyplungeswheneconomicgrowthslows.Willitbeanydifferentthistime?WHENtheAmericanarmofHyundai,aSouthKoreancarmaker,saidlastweekthatitwasworriedabouttheeconomyandmaycancelitsplanstoadvertiseintheSuperBowl,Americanfootball'sgrandfinale,onFebruary3rd,theadvertisingandmediaindustriesshuddered.Marketingspendingisoneofthefirstthingscompaniesdecidetocutwhenfacedwithslowingsales.Suddenlyarecessioninad-spendingseemedimminent.Intheevent,Hyundaidecidedtostayin,butbuyersandsellersofad-spaceknowthatitisonlyamatteroftimebeforesomeonesomewherepullsoutforreal.Yet,evenasstockmarketstumbleandeconomiesfalter,somead-menexpecttheknifetocutmostdeeplyin2009ratherthanin2008.MauriceLévy,chiefexecutiveofPublicisGroupe,aFrenchadvertisingfirm,reckonsthatdespitethechanceofarecessioninAmerica,2008willbeagoodyearforsellersofad-space.Threebig-ticketevents—America'spresidentialelection,theOlympicsinBeijingandtheEuropeanfootballchampionship—couldaddasmuchas1%ofadditionalgrowthtoadvertisingexpenditure,hesays,whichcouldpartiallyoffseteconomicweakness.SirMartinSorrell,chiefexecutiveofWPP,anotherbigadvertisinggroup,acknowledgesthatpeopleareanxious.Buthisclientsarenotcuttingtheiradbudgetsyetandheexpects2008tobeareasonableyear.Bycontrast2009doesnothavebig“quadrennial”politicalorsportingevents,andsocouldbepainful.AnewAmericanpresidentwilldoleoutanyunpleasanteconomicmedicineimmediately,aheadofthemid-termelections,saysSirMartin.Thatwouldhit2009too.Itisjustpossiblethatadvertisingbudgetsmayprovemoreresilientthaninthepast.Thatisbecausetheinternethasbroughtgreateraccountabilitytoadvertising.Marketingchiefscannowprovethataclickonanonlineadproducesasale.Firmsaretryingtoimposethesamedisciplineontelevisionandothermediaspending.“Nowwhencompaniesraisetheirbudgetstheydosomoreresponsibly,”saysJonathanBarnard,headforecasteratZenithOptimedia,aunitofPublicis,“andthey'relesslikelytoseemarketingasafrivolousexpenseripeforcutting.”Inpastbooms,hesays,moneyspentonadvertisinggrewmuchfasterthantheeconomy,andad-spendingasashareofGDPshotup.Thateffectwasmarkedin1999-2000,whendotcomstart-upsploughedmuchoftheirnewlyraisedcapitalstraightintomarketing.Thishasnothappenedtoday,soad-spendingmaynothaveasfartodrop.\nInfact,forecastersdisagreeaboutadvertisingspendingin2008.UBS,abank,predictsthatexpenditureonadswillincreaseby5%,whereasGoldmanSachs,arival,forecaststhatitwilldeclinebyasmuchas5%.Most,however,agreeononething:underlyinggrowthinadspendingwillcomemainlyfromemergingeconomiesandfromadvertisingontheinternet.Emergingmarketsnowrepresentone-fifthofglobalexpenditureonadvertising,andarecontributingevergreatersums.Thepriceofad-spacehasrisenquicklyinsomeemergingmarkets,suchasRussiaandChina,andgrowthisslowingthere.Evenso,ZenithOptimediaexpectsdevelopingcountrieswilladd$50billioninnewad-spendinginthenextthreeyearswhereasdevelopedmarketswilladdonly$38billion—thefirsttimethatemergingmarketshavecomeouttopoversuchaperiod.Inrichcountriestheinternetisclaimingagrowingshareofadvertising—attheexpenseoftraditionalmedia,suchasTVandprint.Thereisstillagapbetweenthetimepeoplespendonlineasafractionoftheirmediaconsumption(aboutafifth)andthefractionofmarketingbudgetsspentontheinternet(about7.5%).Manycompaniesaretryingtonarrowthegap,whichwillsustaininternetadvertisingduringadownturn.Searchadvertising,themosteffectivekindofall,shouldbesafest.Indeed,somepeoplesayaneconomicslowdownislikelytoacceleratetheshifttotheinternet.TrevorKaufman,chiefexecutiveofSchematic,aninteractiveagencybasedinLosAngeleswhichwasrecentlyboughtbyWPP,saysthatoneofhisclients,anAmerican“big-box”nationalretailer,intendstodevotemoreofitsmarketingresourcestotheinternetastheeconomyslows.Theinternet'sinteractivityandwealthofproductinformationmakeitthebestmeansofgeneratingshort-termsales—whereastelevisionisbestforlong-termbrand-building.Duringadownturnclientsseeinternetadsaseasiertomeasureandhenceeasiertojustifytoshareholders,saysMrKaufman.Butonlineadvertisingcannothopetoescapeanadrecessionaltogether.Thequadrennialeffectsof2008willmainlybenefittelevisionandnewspapers.Inaddition,arguesDeloitte,aconsultancy,onlineadsfacenewobstacles.ItpointstoarecentsurveyofAmericanconsumerswhichfoundthatmorethanthree-quartersofrespondentssaidonlineadsweremoreannoyingthanthoseinprint.Concernedabouttheirprivacy,peoplehavestartedtolobbyagainstonlinetrackingofsales,whichisavitalelementoftheinternet'smuch-vauntedeffectiveness.Someindustrieswillcutad-spendingmoredeeplythanothers,saysJamesWalkerofAccentureMarketingSciences.Manybanks,hithardbylosses,havealreadycutbackontheirspending,accordingtomediaexecutives.Makersofcarsandluxurygoodsandotherdispensableitemswillbemoreexposedtoarecessionthancompaniesthatsellnecessities.BartBecht,chiefexecutiveofReckittBenckiser,aBritishconsumer-goodscompanythatmakesdishwashingpowderandotherbasicgoods,sayshisfirmisnotplanningtocutitsmediabudgetforthisyear,“thoughwemayadvertiselessonTV.”Watchthisspace.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nAustralianmediaLikelyladsJan24th2008FromTheEconomistprinteditionThesonsoftwomediamogulsjoinforcesNEWSaboutthePackersandtheMurdochsoftenfeelsasifitdemandscommentarynotjustfrommediaanalysts,butfrompsychologiststoo.Fromthefoundingfathers,SirFrankPackerandSirKeithMurdoch,downthroughtheirsons,KerryandRupert,tothemodern-dayscions,thefamilieshaveprovidedtalesofdynasticambition,seethingfeuds,occasionalrapprochements—andrecently,jointventures.ThelatestinstalmentfeaturesJamesPacker,whotookcontrolofthePackerempireafterhisfather'sdeathin2005,andhisfriend,LachlanMurdoch,whointhesameyearabruptlyresignedfromhisfather'smediaempire,NewsCorporation.Thisweekthepairannouncedthattheywouldspend$A3.3billion($2.8billion)totakejointcontrolofConsolidatedMediaHoldings(CMH),afirmthatcameintobeinglastNovember,whenMrPackersplithisfather'sPBLempireintotwoseparatelylistedcompanies:onefocusingonmedia,Kerry'sabidingpassion,andtheotherongaming,James'smainlove.Beforethesplit,MrPackerhadalreadysoldmostofhisfather'sempiretoaprivateequityfirm,CVCAsiaPacific,includingacontrollingstakeinChannelNine,atelevisionnetworkthatusedtodominateAustralia'sairwavesbutwhichhassincelostviewers.CMHcompriseswhatisleft:stakesinChannelNine,ACPMagazines(whichincludestitlessuchastheBulletinandWomen'sWeekly),Foxtel,Australia'slargestpay-TVoperator,andFoxSports.Undertheir50-50jointventure,MessrsMurdochandPackerplantotakeCMHprivate,andtheyareofferingA$4.80foreachshare,almost25%abovetheirmarketvalue.Thepair'sfirstmove,thisweek,wastoshutdowntheBulletin,a127-yearoldweeklynewsmagazinewhichhadbeenmakinglosses.Makingchangestothebiggermediaproperties,however,willbedifficultbecauseCMHdoesnotcontrolthem.Itownsjust25%ofFoxtel,forinstance,and25%ofPBLMedia,whichownsChannelNine.Thedealisaboutmanagingfinancialassetsratherthanrunningcompaniesinahands-onmanner,saysMarkMcDonnell,amediaanalystwithBBY,aninvestmentbank.SomeanalystswonderwhetherLachlancouldinfactbepositioninghimselfasbuyer-in-waitingforwhenCVCAsiaPacificdecidestosell.RatherlikeanAussieafternoon“soapie”,everythingendedintears—literally—thelasttimethetwomenwentintobusinesstogether.JamesbrokedowninLachlan'skitchenathomeasOne.Tel,amobilephonecompanythattheyhadbothinvestedin,filedforbankruptcyin2001.Theircombinedlosseswereestimatedtobeabout$A1billion.SomeevenspeculatethatJames,acheerleaderforOne.Telbeforeitscollapse,iskeentomakeituptoLachlanbyaskinghisfriendtobecomeaco-ownerofthefamilybusiness.HecouldalsodowithLachlan'smediaexpertise.Lachlanhasjustasmuchtoprove.AsRupert'seldestsonhewasthoughttobetheheirtohisfather'sgiantmediaempire,butseemedtorejectthatpathwhenheleftthefirm.LastDecemberRupertmovedLachlan'syoungerbrother,James,torunNewsCorp'sEuropean,MiddleEasternandAsianoperations,widelyseenaspreparationfortakingthetopjobatsomepoint.ThisisLachlan'sfirstsortiebacktothemediaindustry'sfrontlinesincethen—whichiswherethepoppsychologistsweighedin.Lachlan'sfamilyconnectionsalsoraiseregulatoryquestions,sohehasbeenatpainstopointoutthatthistransactionhasnothingtodowithNewsCorporation,whoseAustralianarmalsoownsstakesinFoxtelandFoxSports.Heisstillanon-executivedirectorofNewsCorporation.ThathasstirredtheinterestofAustralia'scompetitionregulator,whichisnowstudyingtheplan.“Hemaintainshe'sindependent,”saysitschairman,GraemeSamuel.“Well,we'llhavealookatthat.”Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\n\nThepharmaceuticalindustryThebitterestpillJan24th2008|NEWYORKFromTheEconomistprinteditionDrugsfirmshavefoundnewwaystokeepgenericmedicinesatbay“IFWEhavethefeelingthatsomethingisrotteninthestate,thenlet'staketheopportunitytofindout.”SosaidNeelieKroes,theEuropeanCommission'scompetitioncommissioner,seekingtojustifyaspectacularraidlastweekonbigpharmaceuticalcompanies.Officialsareinvestigatingwhethersellersofexpensivebrandedpillsconspiredtogethertodelaythelaunchofcheapgenericrivals.America'sFederalTradeCommission(FTC)isalsolookingintoit.ManyofBigPharma'sbiggestblockbusterswillsoonlosetheirpatentprotection.Deloitte,aconsultancy,estimatesthat$55billionofproductswillgooffpatentin2009andwillthenfacecompetition.Atthesametime,pharmabossesarebeingaskedtodefendpatentsincostlylegalbattlesagainstanincreasinglyconfidentandlitigiousgenericsindustry.Asgenericsfirmsevolvefrommerecopycatsintoinnovatorsintheirownright,manysuchfirms—ledbyIsrael'sTeva,India'sRanbaxyandDrReddy'sLaboratories—arevigorouslychallengingpatents.Thebestwayoutfortheestablisheddrugsindustrywouldbetofindlotsofclevernewblockbusterstoreplacetheonesgoingoff-patent.Butastheindustry'ssaggingsharevaluationssuggest,thenew-drugspipelinesatbigfirmshaverundry.Sotheirmanagersarerelyingontwocontroversialnewstrategies.First,theyaresettlingthelawsuitsbroughtbygenericsfirms,sometimespayingthemtodelaylaunchingcheappills.Novartis,abigSwissfirm,recentlymadeaprivatesettlementforDrReddy'stodropalawsuitinreturnfortheIndianfirmdelayingthelaunchofagenericrivaltoExelon,itsAlzheimer'sremedy.ThismonthitemergedthatGlaxoSmithKline(GSK),abigBritishpharmaceuticalfirm,hasalsosettledapatentlawsuitwithRanbaxyconcerningthegenericsfirm'slaunchofacheapversionofImitrex,GSK'smigrainereliever.UnderAmericanlawsdesignedtoencouragegenericdrugs,whichsavemoneyforpatients,thefirstgenericmakertowinregulatoryapprovalforitsversionofanygivenbrandeddrugissupposedtoenjoyasix-monthmonopoly.Thispromisedpotofgoldwasdesignedtosupportsmallgenericsfirms—butBigPharmahasfoundaloophole.Itispre-emptivelylaunchinggenericversionsofitsownbrandedpills,whichwipesoutthosesixmonthsofmonopolyprofitsandunderminestheeconomicsofgenericsfirms.Merck,abigAmericanpharmaceuticalsfirm,issoonexpectedtolaunchanauthorisedgenericversionofFosamax,anosteoporosisdrugthatisduetolosepatentprotectioninFebruary.Arecentsurveyofglobalbranded-drugsfirmsbyCuttingEdgeInformation,aconsultancy,foundthatathirdofthemhadlaunchedauthorisedgenericsbetween2005and2007—andthenumberwillgrowto44%between2008and2010.Pfizerhassetupanin-housedivisiontohandlesuchgenerics.TherecentstepstakenbyregulatorsinAmericaandEuropetoinvestigateBigPharmalookslikegoodnewsforgenericsfirms—unless,thatis,someofthemturnouttohavebeencomplicitintheallegeddirtytricks.Earlierthismonth,America'sFTCextendeditsprobetoincludegenericscompanies.Andduringlastweek'sraidbyEuropeaninvestigators,oneofthefirmstargetedwasTeva,agenericspioneer.Thegenericsindustryisdefiant,arguingthatitremainstheconsumer'sbestfrienddespiteitssettlementswiththeenemy.KathleenJaeger,headoftheGenericPharmaceuticalAssociation,insiststhatofficialsmustavoidtakingactionthat“sweepsthebadsettlementsinwiththegoodsettlements”.Itremainstobeseenwhethertheupstartpillmakershavebeenplayingfortimeorsellingout.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nEuropeanbusinessschoolsInseadout?Jan24th2008|LONDONANDPARISFromTheEconomistprinteditionNewschoolsandnewrulesarestirringthingsupGetarticlebackgroundTIMEwaswhenINSEADinFontainebleau,nearParis,wasthetopbusinessschoolinEurope,withnocompetition.InEuropetheonlyschoolsthatcouldcallthemselvesrivalsweretheLondonBusinessSchool(LBS)andIMDinSwitzerland.Itsone-yearMBAcourseisstillfamousfortheexperienceofmixingwithstudentsfromawiderangeofcountries.Internationally,itholdsitsheadupwiththetopAmericanschools,andits33,000alumniformapowerfulnetworkcoveringthetopechelonsofglobalbusiness.ButnowtheheatisonforINSEAD,asacrowdofrivalshascomeforward,includinganew,generouslyfundedschoolinBerlin.HEC,theoriginalFrenchbusinessschoolinParis,withaproud127-yearhistory,nowtopsthelatestFinancialTimesrankingofEuropeanschools,aheadofbothINSEADandLBS.Inanotherrankingoftheworld'stop100businessschoolsbytheEconomistIntelligenceUnit*(asistercompanyofTheEconomist),INSEADcomes17th.ThatputsitbehindsevenotherEuropeaninstitutions,includingBarcelona'sIESE,Madrid'sInstitutodeEmpresaandCambridgeUniversity'sJudgeBusinessSchool,whichallmakeitintothetop15.OneINSEADinsidersaysthattheschoolis“rattled”bythelatestrankingsandbyallthenewcompetition.Theschoolisobsessedwithrankings,saysanemployee.Muchmanagementtimegoeson“gaming”theratingstoensureagoodscore.TheEIUrankingsarebasedonstudentsurveysaskingaboutcareeropenings,theoveralleducationalexperience,salaryeffectandnetworkingpotential.ThoseoftheFinancialTimeslookmainlyatreturnoninvestment,intermsoftheboosttoasalary.SoumitraDutta,deanofexternalrelationsatINSEAD,saysthatrankings“arenotalwaysmosthelpful”becauseofallthedifferentmethodologiesused.Inotherwords,theyareanuisance.Thisweek30executivesfrom13differentcountriesareenteringtheirfourthmonthofthefirstexecutiveMBAcourseattheEuropeanSchoolofManagementandTechnologyinBerlin(ESMT).Germanyonlygotroundtofoundinganinternationalbusinessschoolin2002,andstartedsmallMBAclassestwoyearsago.Tobesure,aclassof30studentsispunycomparedwiththe920goingthroughINSEADthisyear.INSEAD'sjointcampus(itrunsaparallelschoolinSingapore),has143teacherscomparedwithESMT's22.ButtheinfantGermaninstitutionhasthefinancialsupporttotriplethesizeofitsfacultywithinfiveyears.ItsbackersspanthealphabetofleadingfirmsfromAllianzandAxelSpringerthroughBMW,BayerandBoschtoSiemensandThyssenKrupp.ThepresidentofESMTisLars-HendrikRöller,aformerINSEADprofessorwithadistinguishedacademiccareeronbothsidesoftheAtlantic.Hesaysthestrengthofthenewschoolwillbebusinessanditsinteractionwithtechnologyandpublicpolicy.INSEADalsohadmoneyonitsmindwhenitappointedanewdeanin2005.FrankBrownisanAmericanandaformerpartnerinPricewaterhouseCoopers.AformerINSEADboardmember,hisbriefasdeanwastoraisemorefinanceforaschoolthathasalwaysstruggledagainstthefinancialheftoftheAmericans.Sofar,saysMrDutta,hehasalreadyraisedsome€170mofthe€200mwhichtheschoolwantstofindby2010.INSEAD,LBSandIMDfacenewthreatsbeyonduppityrivalsliketheSpanishschoolsandtheuniversitiesofOxfordandCambridge(bothlatetoembracebusiness,butrichandrisingfast).TheforthcomingharmonisationofEuropeanuniversityeducation,underwhatisknownastheBolognaAccord,couldalsoupsetthem.Europe'suniversitieswillsoonalladoptauniformAnglo-Saxonsystemofbachelors,mastersanddoctoraldegrees.ThisisdesignedtoproducegreatermovementofstudentsaroundEurope,andhasalreadygenerated299newmanagementmastersdegreecoursesthatstudentscanfollowstraightafteranundergraduatedegree.ItwasHEC'ssuccessinthesecourseswhichhelpeditbeatalltheotherbusinessschoolsintheFTrankings.INSEADandtheotherestablishednamesnodoubtlookdowntheirnosesatthem—butperhapsattheirperil.\n*WhichMBA?2008.EconomistIntelligenceUnit,LondonCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nWirelessindustryAirwavesforsaleJan24th2008FromTheEconomistprinteditionIsthelastbigchunkofradiospectrumworthbiddingfor?LETthebiddingbegin.ThedayTheEconomistwenttopress,America'sFederalCommunicationsCommission(FCC)wasexpectedtoraisethehammeronamuch-awaitedauctionofabigsliceofradiospectrum.Rarelyhasanauctionofspectrumbeensocloselywatched.Buttheexcitementmaynotbejustified.Thesaleiscertainlymorethanjustanotherspectrumauction.Foronething,the700-megahertzbandhascorrectlybeencalledthelast“beachfrontproperty”intheether:itiswellsuitedtothesortofbandwidth-hungryservicesthatwillgeneratemuchofthewirelessindustry'sgrowth.Radiowavesinthispartofthespectrumtravelfarandcanpassthroughthickwalls.Andthiswillbethelastbigchunkofspectrumtobeauctionedforalongwhile.ItisbeingreturnedbyTVbroadcasters,whichareswitchingtodigitalinFebruary2009.Second,thebiggestblockofbandwidthtobesoldcomeswithnovelconditionsattached.Todayafewbigcarriers,suchasVerizonandAT&T,dominateAmerica'swirelessindustryandcontrolwhichdevicesandapplicationscanbeusedontheirnetworks.Butwiththespectrumonsalethisweek,licence-holderswillhavetoaccommodateanymobiledeviceortypeofservice,provideditdoesnotharmthenetwork.Withthese“open-access”provisions,theFCCwantstocreatespaceformoreinnovation.Googleisthethirdreasonthatthisauctionisdifferent.Theopen-accessprovisionsaremainlytheresultoftheonlinegiant'slobbying.Googlehasvowedtobidatleast$4.6billion.Itisnotjustdefendingtheconsumer'sinterests,butitsown:theauctionispartofalargerbattleoverhowrevenuesfromwirelessadvertisingandserviceswillbedivviedupbetweenthecarriersandGoogle.Still,onallthreelevelstheauctioncouldbedisappointing.Becauseoftheturmoilinfinancialmarkets,eventhebiggestbiddersmayhavedifficultiesraisingthenecessarycash,meaningthattheauctionmaynotgeneratemuchmorethan$10billion,thesumofallthereserveprices.Inaddition,theopen-accessprovisionsmaynotgofarenough.InEuropesimilarrulesalreadyapplyandhavenotproducedmuchmorechoiceindevicesandapplications.Muchwilldependonhowfuturelicence-holdersenacttheprovisions.AsforGoogle,itwillnotmindallthatmuchifitloses.Wereittowin,itwouldhavetoraisebillionsmoretobuildawirelessnetworkandwouldprobablyneedtofindapartner,whichwouldbeadeparturefromitspracticeofpiggybackingonotherpeople'sinfrastructure.MostanalystsexpectGoogletobidjustenoughtomakesuretheopen-accessprovisionsapply(theFCChassaiditmayre-auctionthespectrumwithouttheopen-accessprovisionsifthereservepriceisnotmet).HowmuchdoesitmatterwhetheritisGoogle,anotheroutsider,oroneoftheincumbentcarriersthatwinsthespectrum?Probablynotagreatdeal.Moreopenwirelessnetworksseemsuretocomeabout,inAmericaandelsewhere.Technologyisheadinginthatdirection—andconsumerswantopenness,asthebacklashagainstApple,acomputer-maker,anditslocked-downiPhonehandsethasshown.Oneday,withluck,wirelessnetworkswillbeasopenastheinternet.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nChinesehotelsRoomattheinnJan24th2008|SHANGHAIFromTheEconomistprinteditionBusypeopleinthehyperactiveChineseeconomyneedaplacetorestIN1999JiQifoundedCtrip,anewinternetfirm,andhitonavast,untappedareaofdemand:theChinesetraveller.ThiswassomeonewhohadformerlybeentoopoorandtoofencedinbygovernmentrulestomovearoundevenoneofChina's22provinces,letalonethewholecountry.AftertheonlinetravelagencycameHomeInns,anequallysuccessfulchainofbasichotels.Nineyearslater,MrJiisonhisthirdcompanyfortravellers:HantingHotels.EvenasChina'sdynamicexportersarestumblingoverrisingcostsanddeterioratingoverseasmarkets,thesethreefirmsaregrowingatferociousratesbycateringtodomesticdemand.HantingHotelsislessthanthreeyearsoldbutalreadyhas75outlets.Occupancyaverages90%,afterbeingopenforjustthreetofourmonths,saysMrJi.HiscustomersareChinesebusinessmen,ahardy,self-sufficientbunchwhowantcleanrooms,adesk,atelevisionandinternetserviceandarenotfussyaboutpools,minibarsoranyotherfluff.Roompricesaremodest—under$40anight.Asecondbrand,HantingExpress,willsoonbelaunchedwithpricesfrom$15to$30anight,aimedatnon-businesstravellers,withevenmoreausterefittings.MrJisayshewillhave1,000outletswithinthreetofiveyears.Othercompaniesinthelow-costtravelbusinessaredoingwelltoo—thoughnotmanyhavethescaletomatchMrJi'sempire.BehindtheirsuccessisachangeinChinaitself.Tensofmillionsofpeoplearetravellinglongdistancesforthefirsttime,thankstomillionsofnewcarsandinvestmentsbythegovernmentinroads,railwaysandairports.Mostcheaphotelsarewretched.Theyareoftenrunbythelocalgovernmentorastate-ownedcompany.Itisnotuncommontoendupinahotelwithoccasionalheating,cigaretteendsgroundintothecarpetanda“footmassage”roomoffthelobbythatisreallyabrothel.WhenMrJifoundedCtrip,thegovernment'sdesiretokeepaholdonthemovementofpeopleandmoneymeanttherewerenoautomatedpaymentsystemsandnoprivatetravelfirms.Ctriphadtofindwaysaroundthis—manypeople,forinstance,donothavecreditordebitcardsandwantarealticket,notanelectronicone.Ctripsendsoutmotorcyclecourierstotaketheircashanddelivertickets.“Itdidaremarkablejobofbeingflexibleenoughtoaddressgapsinthemarket,”saysDavidMichaeloftheBostonConsultingGroup.RevenuesatHomeInnsaregrowingatmorethan70%ayearanditsnetincomeisrisingfasterstill.Itssharesarevaluedatmorethan100timeslastyear'searnings,andthatattractscompetition.Super8,anAmericanbrandofhotels,hascomeintothemarket,ashasadomesticfirm,Motel168,andahandfulofothers.Morewillarrivesoonandthecountry'stravellerswillbenefit.Exportmarketsmaybeslowing,butdomesticallyChinaisonthemove.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nFacevalueHighStreiffJan24th2008FromTheEconomistprinteditionReutersHasEurope'snewestcarbosslearnedthelessonsofaconfrontationalpast?WHENChristianStreiffarrivedatPSAPeugeotCitroëninlate2006afteraremarkablyshortreignatAirbus,employeeslookedforcluesabouttheirnewbossinanovelhehadpennedsixyearsearlier.In“Kriegspiel”,whichtellsthestoryofaFrenchcompanydoingbusinessinEastGermanyfollowingthefalloftheBerlinWall,oneofthemoresympatheticcharactersobserves:“Humilityisamoreimportantqualitythancourage.”Butwhathascharacterisedmostof53-year-oldMrStreiff'scareerisboldnessandabullishimpatiencetogetthingsdone.Duringhis26yearsatSaint-Gobain,alargebuilding-materialsfirm,MrStreiffbecamethecompany'sturnaroundspecialist—themansenttosortoutanailingsubsidiarybecausehecouldbereliedupontoactquicklyandruthlessly.AfterrestoringthefortunesofGevetex,Saint-Gobain'sGermanglass-fibremaker,hewassentin1991torunitsItalianglass-containerssubsidiary.Heisproudofhisthreeyearsthere:“Iwasnotjustacost-killer,”hesays.“Theheadcountdecreasedby25%,butvolumewentupby30%.”ChristianDurieu,oneoftheunionleadershedealtwith,recallsthatthebaby-facedMrStreiffhada“touchofbrutality”abouthim,buthealwaysacted“withasmile”.In2004MrStreiffgothisreward.HewaspromotedtochiefoperatingofficerandofficiallyrecognisedastheheirapparenttoJean-LouisBeffa,Saint-Gobain'schairmanandthegrandoldmanofFrenchindustry.Ayearlater,hewasonhiswayoutofthecompany.Therewastalkofstrategicdifferencesandhavinglosttheconfidenceoftheboard.ButitisbelievedthatMrBeffathoughtthatMrStreiffwastryingtopushhimoutbeforehewasreadytogo.MrStreiffsaysthatperhapshewastoofocusedonresultsandnotenoughonhisrelationswiththechairman.MrStreiffspentthe14monthsbeforelandingthetopjobatAirbusqualifyingasadivemasterandreflectingonthelessonshehad“learntthehardway”atSaint-Gobain.Henowconcedesthatthelessonwasnotcomplete.MrStreiffshouldhaveknownthatrunningAirbuswouldrequirepoliticalskillsofahighorder;thefirmisownedbyEADS,apeculiarentityinwhichthecoreshareholdersrepresenttheinterestsoftheFrench,GermanandSpanishgovernmentsandwhich,untilJulylastyear,wassaddledwithajointchairmanshipandjointchiefexecutives.MrStreifftookoverinthemidstofcrisis.ThemanufacturingfaultsthathaddelayedthedeliveryoftheA380superjumbowerethreateningthefutureofthecompany,andtheproposedA350,designedtotakeonBoeing'snew787,wasaplanethatnobodywanted.WiththeweakdollaraddingtotheproblemsatAirbus,MrStreiffdecidedthattherewasnotimetolose.Describinghisfirstfewdaysas“verticaltake-off”at“fullthrust”,hethrewhimselfintothejobofsavingAirbus,ashesawit,fromitself.\nMuchofthe“Power8”restructuringplanthatMrStreiffputtogetherwithspeedandenergyduringhis100daysatAirbussurvivedhim.Buthisdemandformanagerialautonomy,includingtherighttorecruithisownteamwithoutregardtothepoliticalbalancingactatEADS,trampledovertoomanyinterests.TheGermans,whohadoriginallypressedforhisappointment,fearedtheywouldsufferthebruntofthecuts.AconfrontationalvisitbyMrStreifftoafactoryinHamburg(wheretheA380'scablingproblemshadoriginated)leftpeopleshockedandangry.TheEADSboardtoldhimthathisbehaviourwasnotacceptable.“Somepeople,”grumbledMrStreiff,“arenotaccustomedtohearingthetruth.”WithalifelineonofferfromPSA,MrStreiffgrabbeditbeforehewaspushed.HeclaimedthathisplanhadbeenunderminedbythedysfunctionalcorporategovernanceatAirbus.ButthemoreemollientLouisGalloiswhosucceededhimshowedwhatcouldbedoneeveninlessthanidealcircumstances,andMrStreiffnowadmitshecouldhavebeenmorediplomatic.ThereisplentyofpotentialforsimilarproblemsatPSA.ThePeugeotfamilycontrols45%ofthevotingrightsandiswellrepresentedonthesupervisoryboard.WhenMrStreiffwashired,RobertPeugeotalsosatontheexecutiveboardasheadofinnovationandquality—twoareasthenewbossmarkedoutinhisfirstthreemonthsforimprovement.Butthistimeeveryonehandledthemselveswithtact.MrPeugeotgracefullysteppedawayfromhisexecutiveroleatthefirm,whileMrStreiffsensiblygavehimselftimetogettoknowthebusinessanditspeoplebeforechargingin.Whathefoundwasasoundcompanythathadbeguntoloseitswayin2004,aftermorethanadecadeofsuccess.PSAwasover-reliantonjustthreecarsanditspopularlightvans.Theaverageageofthemodelline-uphadrisento4.2years—oldbytheindustry'sstandards.MarginsandmarketsharewereslippingandthequalityofPSA'svehicleshadfailedtokeeppacewiththatofitsrivals'.Inshort,thebusinesshadbecomesluggish.PedaltothemetalMrStreiff'sprescriptionisspeed.Everythingthecompanydoesmusthappenfaster,hesays.Hehassethimselfthegoalofmorethandoublingmarginstoaround6%(respectableforthecarindustry)beforetheendof2010.Hehaspromisedtoslashindirectcostsbyathird;doublethequantityofmaterialssourcedfromlow-costcountries;shortendevelopmentcyclesbyathird;lowerfleetaverageagetothreeyears;engineerastep-jumpinquality;expandproductioninemergingmarkets.WhenPSAannouncesitsfull-yearresultsnextmonth,itisexpectedtoshowanimprovementinitsoperatingmarginforthefirsttimeinfouryears.ThereiscertainlynodoubtingMrStreiff'seffectivenesswhenitcomestomanagingdown.Whathestillneedstoproveisthathehaslearnedtomanageup.AtPSA,thatmeansnotjustgettingresultsfromthebusiness,butalsoearningthetrustofthePeugeotfamily.Sofarheseemstobedoingjustthat,buthecannotaffordtogetitwrongagain.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nCommercialspaceflightStarshipenterprise:thenextgenerationJan24th2008|NEWYORKFromTheEconomistprinteditionAfleetofprivatelyfinancedspaceshipsisemerging.ItheraldsanewbusinessinspacetravelVirginGalacticTHEwayWillWhitehorntellsit,thestorybeganin2003inMojave,California,onavisittoScaledComposites,acompanywithareputationfordesigningandbuildingfuturisticandsometimeswacky-lookingaircraft.MrWhitehornisoneofthetopbrassinSirRichardBranson'sVirginGroup;andVirginAtlantic,SirRichard'sairline,wassponsoringGlobalFlyer,aScaledCompositescreation,onanon-stopvoyagearoundtheworld.OnhiswayoutofthefactoryMrWhitehornsawsomethingunusualandaskedwhatitwas.BurtRutan,headofScaledComposites,toldhimitwasaspaceship.Hewasbuildingitforanothercustomer,buthecouldn'tsayanymore.MrRutan'scustomerturnedouttobePaulAllen,oneofthefoundersofMicrosoft.WhenSpaceShipOne,asthecraftwascalled,reachedspaceforthesecondtime,onOctober4th2004,itwonthe$10mAnsariXPrize.ThecraftwastakentohighaltitudebyWhiteKnight,amore-or-lessconventionalaircraft,andthendropped,whereuponitsenginesignitedtoshootit100km(60miles)abovetheplanet,andthusofficiallyintospace.Afterashortflightitre-enteredtheEarth'satmosphereandglideddowntolandonaconventionalrunway.Mannedspacetravelthusmovedfromtherealmofgovernmentstoprivateenterprise.However,MrAllenwasinterestedonlyinprovingthatthespaceshiptechnologywouldwork,notinexploitingitcommerciallyhimself.ThatleftMrRutanwithaverycoolspaceshiponhishands,butnowayofmakingmoneyfromit.MrWhitehornandSirRichardwereintrigued.VirginGalactic,acompanyintheVirginstableandwhichwasheadedbyMrWhitehorn,decidedtolicensethetechnologyforSpaceShipOneandWhiteKnight.VirginGalacticsaiditwantedtooffercommercialsub-orbitalflightstopayingpassengersbytheendofthedecade.VirginGalactichassinceaccumulatedanumberofcommercialrivalsinthespace-tourismmarket.OneofthemisJeffBezos,thefounderofAmazon.com,whoisbuildingacompetingsub-orbitalspaceshipataranchinTexas.Hisspacecompany,BlueOrigin,issosecretivethatitwillnotevenanswerquestionsaboutitslogo.ButVirginGalactichaspassedanimportantmilestone.AtaneventheldattheAmericanMuseumofNaturalHistoryinNewYork,onJanuary23rd,thecompanyunveiledthedesignofitsnewgenerationofvehicles,andsaidthatthefirstexampleshadalmostbeenfinishedatMrRutan'sfactory.WhiteKnightTwoisduetobegintestflightstowardsthemiddleof2008,butmayrolloutofthehangarinthenextfewweeks.TestflightsofSpaceShipTwoitselfcouldstarttowardstheendoftheyear.\nFlymetothemoonThecombinationofacarrieraircraftandaspaceshiptogetintospaceisakintobuildingatwo-stagerocket.Air-launchedrocketshavealonghistory.SpaceShipOneandWhiteKnightwere,inessence,vastlyimprovedandmuchcheaperversionsoftheX-15rocketplanethatsetspeedandaltituderecordsintheearly1960sandtheB-52bomberthatcarriedtherocketplaneunderitswing.Butpurerockets,suchastheonesthatliftthespaceshuttle,wonoutbecausetheSpaceRacebetweenAmericaandRussiaemphasisedspeedovercost,androcketswereproventechnology,havingalreadybeendevelopedasintercontinentalballisticmissiles.However,theyconsumeahugeamountofpowerastheyclawtheirwayupthroughtheEarth'sthickatmosphere.Bycontrastarocketliftedbyaplanewithwingsbeforebeinglaunchedcanbemademuchsmallerandlighter.Theplaneitselfislightbecauseitsenginesbreatheair.Itthusneedstocarrylessfuelthanarocket,andnochemicaloxidanttoburnthatfuel,asarocketwould.Eachcraft—planeandrocket—canthereforebeoptimisedforitsownjob,whichiseasierthandesigningasinglevehiclethathastomakelotsofcompromisestodoboth.LiftingmoreVirginGalactic'ssecondgenerationofcraftarebasedonSpaceShipOneandWhiteKnight,butwithplentyofdifferences.WhiteKnightTwohasbeenredesignedwholesaletoliftamuchlargerspaceshipwitheightpeopleonboardinsteadofthree.IthasawingspanequivalenttothatofaBoeing757,isthreetimeslargerthanitspredecessorandisthelargestaircraftmadeentirelyfromcompositematerialslikecarbonfibre.ItispoweredbyfourPratt&Whitneyengines.Withitstwinboomandlongwing,itlooksmoreliketheGlobalFlyerthanitspredecessor.Ithasalsobeenengineeredtobeabletotreatanypassengersitcarriestozero-gravityswoopsonthewaydownaftertheyhavewatchedthespaceshipbeingreleasedforitstripintospace.SpaceShipTwoitselfwillaccommodatetwopilotsatthefrontandalsosixpassengers,whowillhaveroomenoughtobouncearoundinzerogravity.Ithasmoreofadolphin-likenosethanitsprototypeandmorewindows.Itwillalsogoalittlehigherthanitspredecessor,sothatitspassengerswillexperiencefiveminutesorsoofweightlessnessbeforeflyingbacktoreceivetheirastronauts'wings.But,crucially,ithasthesameflip-upwings.Theseareusedwhenthecraftreconfiguresitselfforre-entryintotheEarth'satmosphere.Thewingsrotatethrough90°togiveitextremelyhighdrag,whichallowsittobeginitsslowdecelerationthroughtheatmosphereearlierandathigheraltitudesthanpreviousspaceflightre-entries.Thespaceshipwillbefuelledbya“hybridrocket”—so-calledbecauseitcontainsbothliquidandsolidpropellants.Theserocketscanbecheapertodevelopandoperate,andthefuelissafertostorethaninpurelyliquid-fuelledones.SpaceShipOneusedrubberandlaughinggas.ScaledCompositesisstudyingalternativestorubberthatmayofferbetterperformance.\nAnotherchangeinthedesignofthespaceshipistheinsertionofaflexibleglass-fibresectionintoitscompositestructure.Thiswillallowtherocket'soxidisertanktoexpandwhenitisfull.AllthesechangesmeanthatwhenSpaceShipTwodoesbeginflighttests,theprogrammewilllastatleastayearbeforepayingcustomerscantaketotheskies.Workwillalsobeginsoononfittingoutanotherfactorytostartmakingmoreofthesecraft.VirginGalactichasorderedfivespaceshipsandtwocarrieraircraft.Thespaceshipswilltakelongertorefuelfortheirnextflightthanthecarrieraircraftdo,so—thinkingjustasanairlinewould—thefirmhasconcludeditneedsmorespaceshipsthancarriers.Eachspaceshipshouldeventuallybecapableofmakingtwotripsintospaceeveryday,andthelaunchaircraftthreeorfourflights.MrRutansaystheycouldoperatefromanumberofairportsandspaceportsaroundtheworld.VirginGalacticbelievesthefleetithasorderedshouldbelargeenoughtofurnishitsspace-tourismbusinessintheearlyyears.Tripsareexpectedtocostsome$200,000eachtostartwith.Hundredsofpeoplehaveputdownatotalof$30mindeposits.However,asthefirmalsomadeclearattheannouncementinNewYork,thenewcraftmayonedaydoalotmorethanferryday-tripperstotheedgeofspaceandback.StephenAttenborough,VirginGalactic'scommercialdirector,saysthespaceshipisrevolutionarybecauseitisabletotakenotjustpeopleintospace,butotherpayloadstoo.Up,upandawayWhatthoseotherthingswillbeisstillunclear,butsatellitesareapossibility.VirginGalacticsaysitthinksitcouldlaunchsmallsatellitesintherangeof50-100kgintolow-EarthorbitusinganunmannedrockethungfromWhiteKnightTwoforlessthan$2.5m.ThemarketforlaunchingsmallsatellitesispresentlyonlypartlyservedbythePegasusrocket,whichislaunchedathighaltitudebyacommercialjetaircraft.ButalaunchusingPegasuswouldcostmanytimesthepricethatVirginistalkingabout.Ifcostsarebroughtlowenoughitcouldmakeeventinysatellitesfinanciallyviable.Thesecouldbesentupbyallsortsoforganisations,includinguniversitiesforresearchprojects.Anairlaunchisconstrainedbytheweightthecarrieraircraftcanlift,sobigrocketsblastingofffromthegroundwill,forthetimebeing,remaintheonlywaytogettheheaviestpayloadsintospace.Itispossibleforsmallsatellitestohitcharidealongwithbigpayloads,butthatcanbedifficulttoarrangeandismuchmorerestrictivethanhavingadedicatedlow-costlaunchvehiclelikeWhiteKnightTwo.VirginGalacticisalreadyhavingdiscussionswithacompanyinterestedincreatingarocketthatwouldlaunchsatellitesfromWhiteKnightTwo.Launchingathighaltitudehasmanyadvantagesforspacetouristsandcommercialloadsalike.Usinganaircrafttotakeuparocketcanavoidthenumerousweather-induceddelays—andcosts—thatgetinthewayofrocketsfiredfromtheground.Aircraftcanclimbabovebadweathertoamoresuitablelaunchposition.Nordotheyneedspeciallybuilt,reinforcedlaunchpads.Anysuitablerunwaywilldo.Inaddition,anairlaunchpromisesalotmorescopetofindagood“launchwindow”togetthespacecraftintoorbit.LaunchingfromthegroundcanmeanwaitingfortheEarthtorotateuntilthelaunchwindowisaccessible.Butanaeroplanecarryingarocketcanflytothewindowinstead.Airlaunchesarealsoagreenerwayofgettingintospace,becausetheyavoidignitingrocketsintheloweratmosphere.EarlierthismonthVirginAtlanticsaiditwouldflyoneofitsBoeing747susingbiofuelduringademonstrationflightinFebruary.MrAttenboroughsaysthishas“implications”forWhiteKnightTwo,whichindicatesthatthecompanyisalsolookingatgreenerfuelsforthecarrieraircraft.Whoknowsifthemoon'saballoon?InthelongertermVirginGalactic'ssystemcouldalsobeusedtolaunchhypersonicvehicles,whichcoulddashfromonesideoftheworldtotheotherinafewhours.In2005and2006WhiteKnighttest-launchedtheAmericangovernment'sexperimentalX-37hypersonicplane.America'sspaceagency,NASA,hassignedanagreementwithVirginthatcoversco-operationontheplanes.Thecompanyisalsosaidtobediscussingathird,morepowerfulgenerationofspaceships,designedtomakelongersub-orbitaljourneysratherthanjustpokingtheirnosesintospaceinthewaythatWhiteKnightTwowill.MrWhitehornandMrRutanhavemadenosecretoftheirdesiretoseelatergenerationsofcarrieraircraft\nandrocketrythatcanputpeopleintoorbit.SomewithintheindustryarescepticalthatMrRutancandevelopsuchvehicles,whichwillhavetotravelmanytimesfasterthanasub-orbitalplaneandmusthavetougherheat-shieldinginordertosurviveharsherre-entry.Nevertheless,businessistakinganincreasinginterestinthepossibilitiesandlastyearNorthropGrumman,abigaerospaceanddefencecontractor,increasedits40%stakeinScaledCompositesto100%.MrRutanexpectsScaledCompositestobuild40-50launchaircraft.Hethinksthatatleast15willbeusedforspacetourism,withtherestusedforsatellitesandotherpayloads.Asthenewgenerationofcraftemerges,sowillnewideasabouttheircapabilitiesandpotential.Withsome$70malreadyspentandanother$130mstilltocome,MrAttenboroughsaysthatVirginGalacticexpectstobreakevenin2014.Reducingthepriceofatripintospacetoattractmorecustomersisalsopartoftheplan,asisexploitingeverypossibleformofadditionalincome,suchassellingmediarights.FindingnewmarketsforitscarriershipwillhelpVirginGalacticmakemoneyfaster.MrWhitehornbelievesthatwideruseofthevehiclewillultimatelycomewithliftingpayloadsandsatellitesintospace.Althoughthecustomersforsuchlaunchesarenotyetputtingdowntheirdeposits,theprogresstocommercialspaceflight—completewithabusinessplanandaprofitgoal—isnonethelessremarkable.TherearesurelyeasierandsaferwaysforbusinessmenlikeSirRichard,MrBezosandotherstomakemoney.Thenagain,commercialisingspaceisaventurefortheunconventional.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nSpaceflightmedicalsSuitedforspaceJan24th2008|NEWYORKFromTheEconomistprinteditionCanhumanscopewiththefinalfrontier?PEOPLEdidnotevolveforspaceflight,sohowwilltheycopewhentheticketsgoonsale?Itwillbeawildride,butonethatasurprisinglylargenumbermayenjoy.ManyofVirginGalactic'searlycustomershavebeenputthroughahumancentrifugetofindout.Thisteststheirreactionsandtolerancetotheforcesthattheywouldexperienceonasub-orbitaltrip.ThatincludesdealingwithG-forces6.5timesthatofEarth'sgravityandmostlytheycopedverywell.Humancentrifugesfeaturedinboth“Moonraker”and“TheRightStuff”.Themachinesinthosefilmswerebasic:aseatontheendofametalbeam.Knownas“ironmaidens”,theyaremedievalcomparedwiththekitattheNationalAerospaceTrainingandResearchCentre(NASTAR)inSouthampton,Pennsylvania,whichopenedlastyearatacostof$25m.Thecentrecansimulategravitationalforcesinanydirectioninits“dynamicallypositionedgondola”—afancywayofdescribingacabinthatcanfaceinanydirectionandisattachedtoanarmspinningaroundacentralpoint.Thevictims—sorry,customers—arestrappedinastheywatchawidescreensimulatingtheviewintospace.TotherearisanotherscreenshowingtherecedingEarth.Withthis,NASTARisabletorecreateanykindofspacelaunch.GlennKing,ofNASTAR,saysthecompanyusuallytrainsfighterpilots,butithasalsotrainedafewpeoplewhohavepaidtovisittheinternationalspacestation.ThesimulationofforceslikelytobeexperiencedonthenewVirginGalacticspaceshipsuggestsmorepeoplethanhadpreviouslybeenimaginedwouldbeabletoendurethetrip.TheacceptedviewwasthatonlythefittestcouldwithstandsixGsthroughthechestand3.5Gsfromheadtotoe.Thesecond,smallerforce,istougher,becauseitpushesblooddownwardsandawayfromthehead,sometimesleadingtounconsciousness.Nevertheless,thepassengerswhotestedwellatNASTARincludeda77-year-oldwomanandJamesLovelock,ascientistandauthor,whois88.Somepeopledidneedatriptothedoctorbeforegoingforaspin.Inthesecasesdoctorslookedforabnormalities,likeanunusualheartrhythm.Unknownhealthproblemsaremoreofathreatthanknownones.Butevensomewhohadhealthproblemswereabletogoahead,saysMrKing.Ofthe80potentialpassengers,twowereadvisedbytheirdoctorsnottotakepartandthreewereaskedtocomebackaftermoretraining.NASTARreckonsthatmorethan90%ofthepopulationcouldhandleasub-orbitalflight.NordoesMrKingseeanyreasonwhychildrenasyoungasfiveorsixcouldnotgotoo.Airsicknessshouldnotbeaproblem.VirginGalactic'sWillWhitehornsaysthatoneoperatorofzero-gravityaeroplanerideshasvirtuallyeliminatedthevomiting,thankstoacombinationof“diet,drugs,trainingandmethodology”.Noreasonthen,shortofafewhundredthousanddollars,nottobookaflightrightnow.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nBondinsurersBuddy,couldyouspareus$15billion?Jan24th2008|NEWYORKFromTheEconomistprinteditionAnothershadyrealmoffinancegoesbeggingforamassivebail-outIllustrationbySatoshiKambayashiTHIShasbeenacrisisofriskinunexpectedplaces.Thinkofcollateralised-debtobligations(CDOs),structuredinvestmentvehicles(SIVs),andnowa£4.9billion($7.1billion)lossduetofraudatSociétéGénérale.Oneparticularnastinesshasbeenfesteringinanobscureindustrywhich,untilrecently,enjoyedpristinecreditratings:the“monoline”bondinsurers.Theirplummetingfortunes(seechart)helpedtosparkthestockmarketsell-offthatpromptedtheFederalReservetoactthisweekaheadofitsscheduledmeeting.SoperturbingwastheirplightthattheprospectofarescuecausedafarbiggerstockmarketrallythantheFed'sbiggestratecutinaquarterofacenturythedaybefore.Theremaybenobetterexampleofhowadullprovinceoffinance,whensnaredbycomplexrisksitbarelyunderstands,canbecometerrifyinglyunboring.Thoughthemselvesnogiants,monolineshaveguaranteedawhopping$2.4trillionofoutstandingdebt.Thetwolargest,MBIAandAmbac,cuttheirteeth“wrapping”municipalbonds,ineffect,rentingtheirAAAratingtothesecuritiesforafee.Foralongtimethisbusiness,thoughstaid,wasnicelyprofitable.But,ascompetitiongrew,themonolines—withtwohonourableexceptions,FSAandAssuredGuaranty—wereseducedbythehigherreturnsofstructuredfinance,especiallythestuffinvolvingsubprimemortgages(seetable).Asmortgagedelinquenciesrose,sodidpaperlosses.AmbacandMBIAwroteassetsdownbyacombined$8.5billioninthepastquarter.Themonolines'thincapitalcushions,adequatewhentheywroteonlysafemunicipalbusiness,nowlookworryinglythreadbare.Moody'sandStandard&Poor's—theveryratingagenciesthemonolinesreliedsoheavilyuponwhenpilingintothemortgagebusiness—arethreateningdowngradesunlesstheyraisemoreequity.Ambac'sfailuretodosolastweekpromptedFitch,anotherratingagency,tocutitsdebtbytwo\nnotches,toAA.Thishasspookedinvestorsforseveralreasons.First,heavilydowngradedinsurerswouldlosetheirraisond'êtreandthusfacetheprospectofsellinguporgoinginto“run-off”:closingtonewbusinessandgraduallywindingdown.Worse,fromasystemicpointofview,whenamonolineisdowngradedallofthepaperithasinsuredmustbedowngradedtoo.Hence,afteritsmoveagainstAmbac,Fitchwentontocutnofewerthan137,500bonds(includingoneissuedbyArsenalfootballclub).Thisismorethanacademic:holdersofdowngradedbondshavetomarkthemdownunder“fairvalue”accountingrules.Some,suchaspensionfunds,mayholdonlythehighest-gradesecurities,raisingtheprospectofforcedsales.And,withfewertop-notchinsurerstoturnto,bondissuers'costswouldrise.ThelossoftheAAAbadgewouldcostinvestorsandborrowersupto$200billion,reckonsBloomberg,afinancial-informationfirm.Banksthatwereactiveinasset-backedmarketshavemultiplereasonstoworry.Manynotonlyusedmonolinestowraptheirproductsbutalsoboughtprotectionfromthemthroughcredit-defaultswaps(CDS).Oneinsurer,ACA,hasalreadyhadproblemspayingout,promptingMerrillLynchtowritedownitsexposuretothefirmby$1.9billion.MeredithWhitneyofOppenheimerhascalculatedthatbanksmayhavetowriteoff$10.1billionofthepapertheyinsuredwithACA.BecausetheCDSmarketisbarelyregulated,itisimpossibletoknowhowmuchofthismonoline“counterpartyrisk”banksareexposedto.Inmanyways,ACAwasanoutlier:witharatingthatneverroseabovesingle-A,ittargetedinferiorbondissuers(whomitsbossoncedescribedas“thecreamofthecrap”).Butdowngradescouldleaveothersstrugglingtopayoutonpoliciestoo.MonolineshaveatinypercentageoftheCDSbusiness,accordingtotheBankforInternationalSettlements.Butthemarketissovastthatthisstillamountsto$95billionofprotection,mostofitsoldtobanks.IfMerrillLynchisaguide,fullyhalfofWallStreet'ssubprimeandCDOhedgeswerebookedwithmonolines,saysBradHintzofSanfordBernstein.AstheriskofMBIAandAmbacdefaultinghasgrown,headds,sohasthecostofholdingoncevaluablehedgeswiththem.AlifelineforthemonolinesNowonder,then,thatagroupofbanksisgivingeartoarequestfromNewYork'sinsuranceregulator,EricDinallo,whooverseessomeofthebigmonolines,todiscussapossiblerescue.InpreliminarytalksheldonJanuary23rd,MrDinalloreportedlyaskedthebankstostumpupasmuchas$15billiontohelpMBIAandAmbacpreservetheirratings.Theregulator,whoapparentlyhastheblessingoffederalofficials,istalkingtootherpotentialinvestorstoo,saidtoincludeWilburRoss,avultureinvestor,andWarrenBuffett'sBerkshireHathaway,whichrecentlysetupitsownbondinsurerandhasnotruledoutbuyingpartofatroubledrival.Theseveteransbelievethebusinesshasafuture,despiteitswoes.Thatisbecausetheyunderstandthat,onthemunicipalsideatleast,themarkethasalwaysdemandedamuchhigherspreadthantheactualcostofrisk,pointsoutCBMGroup'sAndréCappon.Cleverguarantorscanexploitthisgap.Itremainsunclearhowanybail-outwouldbestructured.Onepossibilityistocreatetheequivalentof“badbanks”,ringfencingthemonolines'tarnishedCDOoperationstoallowtheirmunicipalbusinessestocontinueunencumbered,orbesold.Thiswouldalsoassuagefearsthatmishapsinsecuritisationmightbringdownthepublic-financemarkets,saysJanetTavakoli,aconsultant.Anotherideawouldbetocreateaso-called“excess-of-losspool”thatwouldallowthemonolinestoreinsuretheirnastiesttailrisks.Bankshavereasonstopausebeforetakingpart.TheyhaveseenaTreasury-backedbail-outofSIVswitherforlackofinterest,andtheyarenotexactlyflushwithcapital.Butitmaybeabetworthtaking,howevergingerly.Evenif$15billionwereneeded,thatisthoughttobealotlessthantheir(undisclosed)totalexposuretothemonolines.Apainfulcontributionnowlookspreferabletoanotheragonisingroundofwrite-downslaterthisyear.\nCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nGlobalmarketsAwildrideJan24th2008FromTheEconomistprinteditionTherewillbeoddrallies,butfearwillcontinuetostalkthefinancialmarketsJAMESCARVILLE,BillClinton'spoliticaladviser,oncesaidhewantedtobereincarnatedasthebondmarketsothathecould“intimidateeverybody”.Thisweekthestockmarketsshowedtheycouldmakeprettygooduseoftheknuckle-duster,too.ItdidnoteventakeafallonWallStreettospooktheFederalReserveintoslashinginterestratesbythree-quartersofapointonJanuary22nd;theAmericanmarketswereclosedforapublicholidaythedaybefore.TheFedreactedinsteadtoaslumpinglobalmarketsandtheprospect,indicatedbythefuturesmarket,thattheDowJonesIndustrialAveragewoulddropbymorethan500pointsattheopening.Smallwonderthattradersarenowtalkingaboutthe“Bernankeput”─theideathat,likehispredecessor,AlanGreenspan,theFedchairmanwillridetotherescuewhenevermarketsfalter.OnJanuary23rdthemarketschalkedupanothersuccesswhen,afterdrivingdownthesharepricesofthetwolargestbondinsurerstothepointwheretheythreatenedtobuckle,theprospectofarescuesurfaced.Itcamejustinthenickoftime.HalfwaythroughJanuary23rd,manyglobalstockmarkets,includingAmerica'sNASDAQ,wereatleast20%belowtheirpeaks,adeclinethatputtheminbear-marketterritory(seechart).Worldstockmarkets,asmeasuredbytheMSCI,werealmostthere.DespiteitsrecoveryonJanuary23rdtheS&P500wasstilldown14.5%fromitspeakinOctober.Themarketshavepulledoutofsuchswallowdivesbefore,notablyin1998whenratecutsrevivedsentimentinthewakeoftheAsiancrisisandthecollapseofLong-TermCapitalManagement,anAmericanhedgefund.Whetherthelatestrecoverymarksaturningpoint,ormerelyapitstoponthewaytoabearmarket,dependsonwhethertheFedhasmovedsharplyanddeeplyenoughtosaveAmericafromrecession.ItalsodependsonhowtherestoftheworldreactstoAmerica'swoes(seearticle,article,article).Thereareplentyofreasonsforpessimism.Thecreditmarket,whichhasbeenabettergaugeofthecreditcrisisthanshares,isstillsickly.AsofJanuary23rd,thecostofinsuringagainstdefaultbyEuropeanspeculativebondshadrisenbyalmostone-and-a-halfpercentagepointsoverthepreviousmonth(seechart).Thecreditcrunchcontinuestosapthestrengthofthefinancialsystem,whichmaycurbbanks'abilitytolend.Byfloodingthemoneymarketswithliquidityneartheendoflastyear,centralbankshelpedunjamthetroubledinterbankmarket.Butayearaftersubprime-mortgagewoesstartedtoemerge,housepricesarestillfallingandinvestmentbanksareowninguptoeverlargerwrite-offsonmortgage-relatedinvestments.Iftheproblemsarestilllargelyfocusedonthesubprime-mortgagemarket,theyarenotsafelyquarantinedintheUnitedStates.Beforetheyearstarted,investorshadtakencomfortfromtheconceptofdecoupling—thattherestoftheworld,andparticularlyAsia,couldkeepgrowing\nregardless(seearticle).Generally,muchoftheworld,particularlyemergingAsia,islessexposedtoAmericathanitwas.However,theslideintheBalticdryindexofshippingratescouldbeanindicatoroffallingglobaltradevolumes(itmayalsoreflectextrashippingcapacity).Andcommodityprices(includingoil)haveslippedonfearstheglobaleconomyisslowing.Emergingmarkets,whichhadyieldedmuchbetterreturnsthanthedevelopedworlddidin2007,havealsobeendraggeddownsincethestartoftheyear.AndriskiercurrencieshavelostgroundtotherelativesecurityoftheJapaneseyenandtheSwissfranc.Neversatisfied,futuresmarketsarebettingthattheFedwillcutratesagainwhenpolicymakersmeetattheendofthemonth.Wouldanotherhalfapercentagepointbeenoughtostoptherot?Onesalutarythought,accordingtoTeunDraaismaofMorganStanley,isthatonthe15occasionssince1970whentheFedhascutratesby75basispointsormore,theaveragegainforEuropeanstockmarketsoverthefollowingsixmonthshasbeen10.3%.FredrikNerbrandofHSBCPrivateBankthinksmarketsaredueforareboundbecausethesellinghasbecomesoindiscriminate.Butevenifratecutsbolsterconfidence,theymaynotcomesoonenoughtostopcorporateprofitstumbling.AccordingtoTimBondofBarclaysCapital,therecentfallsinAmericanandEuropeansharepricesimplya20%orsodropinprofitsfromtheircyclicalpeak.Thatisclosetotheaveragedeclineinpreviousprofitsdownturns.However,thiscyclehasbeenmoreextremethannormal;profitsrecentlyreacheda40-yearhighasashareofAmericanGDP.Theythushavefurthertofalliftheyaregoingtoreturntothemean.ThedismaldollarAlso,theFed'sactionsdonotjusthaveaneffectonsharemarkets.AlanRuskinoftheRoyalBankofScotlandsaysthatrapidratecutsmeanthedollarrisksbecomingafundingcurrencyforthe“carrytrade”,ratherastheill-starredJapaneseyenhasbeen.(Thetradeinvolvesborrowinginacurrencywithlowinterestratesandinvestingtheproceedsinacurrencywithhigherrates.)MrRuskinsaysthatthegapbetween12-monthdollarandSwiss-francratesisalreadyaslowasitwasinthelastcycle,whentheFedcutratesto1%.“Bytheendofthiscycle,dollarshort-termrateswillbelowerthanall40liquidcurrenciesexcepttheJapaneseyenandHongKongandTaiwanesedollars.”Ifthedollarbecomespartofthecarrytrade,itwilltumbleevenfurther.AndafallingcurrencymakesithardertopersuadeforeignerstofinanceAmerica'stradedeficit.DavidBowersofAbsoluteStrategyResearchreckonsthesubprimecrisishas“destabilisedthesymbioticrelationshipbetweenAsianandMiddleEasternsaversandAmericanconsumers.”ThoseforeigninvestorsmayalsogetspookedatthedirectionofFedpolicy.TheyhaveseenthebankcutratesinresponsetolastAugust'screditturmoilandnowaJanuarystockmarketplunge.TheymaystarttofeelthattheFedhasturnedfromawatchdogagainstinflationintoalabradorpuppy.Thankstotheglobalslowdown,thereisnoshort-terminflationarythreat.Butthelonger-termriskshaveprobablygoneup.And,asJamesCarvillediscoveredinthe1990s,thebond-marketvigilantescanbepowerfulenemiesiftheyfeelneglected.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nTheFederalReserveGoingitaloneJan24th2008|WASHINGTON,DCFromTheEconomistprinteditionThegapbetweentheFedandotherbigcentralbankswidens.Forhowlong?ALMOSTasstrikingasthescaleandtimingoftheFed'sratecutonJanuary22ndwasthecoolnesswithwhichothercentralbanksreacted.TheBankofCanadacutitsshort-termratesbyaquarterpointatascheduledmeetingthesamedayandsomesmallercentralbanksthatpegtheircurrenciestothedollarfollowedtheFed'slead.Butnootherbigcentralbankdid.TheBankofEnglandsaidithadnoplanstobringforwarditsnextmeeting,dueonFebruary6thand7th.Jean-ClaudeTrichet,presidentoftheEuropeanCentralBank(ECB),wentoutofhiswaytosquashmarketspeculationthatit,too,mightsooncutrates.“Particularlyindemandingtimesofsignificantmarketcorrection”,hesaid(todisappointmentamonginvestors),“itistheresponsibilityofthecentralbanktosolidlyanchorinflationexpectations”.Atonelevel,thisdissonanceisnosurprise.Afterall,itisAmerica'seconomythatistippingintorecession.Britainhasmanyvulnerabilities—withabigpropertybubbleandhighlyindebtedconsumers—butitseconomyhasnot(yet)stalledinthewaythatAmerica'shas.BothinBritainandtheeurozone,centralbankersareworriedaboutinflationandtheprospectofawage-pricespiral.Butthetransatlanticgapalsosuggestssharpdifferencesindealingwithtroublesinfinancialmarkets.ItisstrikingthattheFed'sratecutcamethedayafteraswooninstockmarketsoutsideAmerica(WallStreetwasclosedatthetimeforaholiday).America'scentralbankers,itseems,aremoreworriedabouttumblingsharesinEuropethanEuropeansarethemselves.FewdoubtthatAmerica'scentralbankershadroomtocut.At4.25%,short-terminterestratesweresomewherearoundneutral,butmonetarypolicywashardlyloose(seechart).Asevermorefiguressuggestedtheeconomywasstalling,theFedrealisedthatitneededtostepupthepaceofloosening—ashiftMrBernankehadmadeclearonJanuary10th.FinancialmarketswereexpectingaheftyratecutonJanuary30thandseveralbeyond.Itwasthetimingthatraisedeyebrows.OnerationalewasthatanunscheduledcutaweekbeforearegularmeetingwouldallowtheFedtoloosenratesfasteroverall.Thecentralbankers'accompanyingstatementleftthedoorwideopentomorecuts,andfinancialmarketsarenowexpectingafurtherhalf-pointreductiononJanuary30th.Butthemainreasonforactionthisweekwastoforestallfinancial-marketpanic.Fedofficialshavemadenosecretoftheirworriesabouta“negativefeedback”fromfinancialmarketstotherealeconomy.Theyfearedmorebadnews,suchasthedowngradingofbondinsurance,couldsetoffanastydownwardspiral.TherisksofsuchacalamitymadethemthinkthatwaitinguntilJanuary30thwastoodangerous.Giventheglobalnatureoffinancialmarkets,thatlogicsuggeststherewasacaseforco-ordinatedinternationalaction.ThetroublefortheFedisthatothercentralbankersseethingsdifferently.Whatevertheythinkofitsmotives,theworld'scentralbankersnowfaceaFedthatisinfull-scalecuttingmode.Andthechancesarethatothercentralbankswilleventuallyfollowsuit.TheBankofEnglandiswidelyexpectedtocutratesatitsFebruarymeeting.ForallMrTrichet'sprotestations,thefinancialmarketsreckontheECBwillcutratesbythesummerasEurope'soutputslows.Ifhistoryisanyguide,theywillbeprovedright.OthercentralbankersmaydecrytheFed'salacrityatbringingcheapermoney,buttheyusuallyjoinitintime.\nCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nPakistan'sstockmarketTheworld'smostdangeroushavenJan24th2008|HONGKONGFromTheEconomistprinteditionAnunlikelyboltholeforinvestorsTHISnewspapercallsit“theworld'smostdangerousplace”.MarkMatthewsofMerrillLynchcallsit“thegreatestinformation-arbitrageopportunityintheworld.”Hemayberight.Sincethestartoftheyear,whenPakistanwasreelingfromtheassassinationofBenazirBhutto,ithasbeenthebest-performingstockmarketinAsia(seechart).Moreevidenceofmadnessinfinancialmarkets?Probablynot.Itspoliticsarebleakbuttheeconomyisexpectedtogrowbetween6.5%and7%in2008.Itscompaniescontinue,onaverage,tohaveahighdividend—4%—andalowprice/earningsvaluation—under15times.Perhapsitsmainsalvationisthelackofforeignersinthemarket:thatmeansfewerpeopletopanicaboutthesecuritysituation—orthesubprimesituationbackhome.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nDecoupling1:EmergingAsiaAnindependentstreakJan24th2008|HONGKONGFromTheEconomistprinteditionSomeinvestorsfearthatAmerica'sweakeningeconomywilldragdownAsia.Inaseriesofrelatedarticles,weaskiftheyareright.First,theemergingcountriesINVESTORSwereuntilrecentlybigfansofthe“decoupling”theory,thenotionthatAsianeconomiescanshrugoffanAmericanrecession.Thisweek'splungeinshareprices,atonepointtakingtheMSCIEmergingAsiaIndexdown25%fromitsOctoberhigh,suggeststheyhavechangedtheirminds.ButthefactthattheirstockmarketsarestillcoupleddoesnotmeanthattheireconomieswillfollowAmericaoveracliff.DecouplingwasalwaysamisnomerifitimpliedthatanAmericanrecessionwouldhavenoimpactintheEast.Exportsandhenceprofitswouldcertainlybesqueezed;somefearJapanmayevenbetippingbackintorecession(seearticle).Instead,therealargumentintherestofAsiawasthatitwouldsufferlessthaninpreviousAmericandownturns.Aswellashittingexports,America'stroublescouldalsoaffectemergingAsiathroughfinancialchannels.ItsexposuretothesubprimemessisthoughttobesmallerthanthatofAmericanorEuropeanbanks.Evenso,Chinesebanksharestumbledthisweekonreportsthattheywouldhavetomakebiggerwrite-downsontheirholdingsofAmericansubprimesecurities.Andifsharesslidefurtherasglobalinvestorsfleefromriskyassets,thiscoulddampenbusinessandconsumerconfidenceintheregion.SomeAsianeconomiesaremorevulnerablethanothers.Singapore,HongKongandMalaysiaarethemostexposed,withexportstoAmericaequivalentto20%ormoreoftheirGDPs,comparedwithonly8%inChinaand2%inIndia.Therearealreadysomeominoussigns.Singapore'sexportstoAmericaaredownby11%overthepastyear,whereasMalaysia'sfellby16%.ExportstootheremergingeconomiesandtotheEuropeanUnionsurged,sototalexportsstillgrewby6%inbotheconomies.Butthatwasmuchslowerthanatthestartof2007,andtheworrynowisthatdemandfromEuropehasstartedtoflag.ThegrowthinChina'sexportstoAmericaslowedtoonly1%(inyuanterms)intheyeartoDecemberfromover20%inlate2006.SofartheimpactonGDPhasbeenmodest.FigurespublishedonJanuary24thshowedthatChina'sGDPgrewbyasizzling11.2%intheyeartothefourthquarter,downfrom11.5%inthepreviousthreemonths.Mosteconomistsexpectgrowthtoslowtoastill-healthy9-10%thisyear,buttherearegrowingconcernsthatnewgovernmentlimitsonbanklendingriskchokingtheeconomy.China'seconomywouldprobablystillexpandbyaround8-9%evenifexportgrowthdriedup.Duringthe2001AmericanrecessionChina'sGDPgrowthbarelyslowed.Incontrast,HongKong,Singapore,TaiwanandMalaysiasufferedfull-blownrecessions,withgrowthratesfallingbymorethantenpercentagepointsfrompeaktotrough.America'sslumpislikelytobedeeperthanin2001andAsiaisnowmoreintegratedintotheglobaleconomythanitusedtobe.Doomstersconclude,therefore,thattheseeconomiescouldbehitevenharderthistime.Themainreasonstobemoreoptimisticarethatdomesticdemand(consumerspendingandinvestment)islikelytoremainstrongerandthatgovernmentshavemoreflexibilitytooffsetAmerica'smalaise.Lastyear,despiteaslowdowninAmerica'simports,mostAsianeconomiesgrewfasterasdomesticdemandspedupeverywhereexceptThailand.RobertPrior-Wandesforde,aneconomistatHSBC,saysthatthosewhoarguethatAsiacannotdecouplefromAmericaareignoringthefactthattheyalreadyhave.TakeMalaysia:itsexportstoAmericaplunged,yetitsGDPgrowthquickenedfrom5.7%attheendof2006to6.7%inthethirdquarteroflastyear.ContrarytothepopularviewthatAsia'smeltdownduringthe2001recessionwasentirelyduetoaslumpinexports,PeterRedward,atBarclaysCapital,arguesthatafallininvestmentplayedabiggerrole.Too\nmuchdebtandexcesscapacityweigheddownfirms,particularlyintheelectronicsindustry,whichwasattheheartoftheAmericanrecession.Todayfirmsareinmuchbettershape.Capacityutilisationishighacrosstheregion;outsideChina,investmentasashareofGDPishistoricallylow;companybalance-sheetsarestrongerandrealinterestratesarelow.Firmsarethereforelesslikelytoslashinvestmentthanin2001.Slowingexportswillaffectdomesticspending.ButmacroeconomicfundamentalsaremuchhealthierinEastAsiathesedays.Largeforeign-exchangereservesmakecountrieslessvulnerabletoshocks.Budgetsareinsurplusorclosetobalance,providingmorescopeforfiscalstimulustosupportgrowth.Forallthesereasons,evenifAsia'sexportsclearlyhavenotdecoupledfromAmerica,itseconomieswillbelesshurtbyarecessiontherethaninthepast.StandardCharteredforecaststhatemergingAsiawillgrowbyanaverageof6.4%in2008,downfrom7.8%in2007.In2001growthdroppedbythreepercentagepoints,to4.2%.FinancialmarketswereslowtorealisethatgrowthandhenceprofitsinsomecountriesinemergingAsiawillbedentedbyanAmericandownturn.Butnowtheyriskexaggeratingthepotentialdamage.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nDecoupling2:JapanUnabletofendforitselfJan24th2008|TOKYOFromTheEconomistprinteditionJapan'sexport-ledeconomystillreliesheavilyonAmericaINTOKYO'Sfinancialmarketsalong-heldsenseofinjusticeisturningtorisingalarm.TheinjusticeisthatthesharesofJapanesecompanieswerethefirsttobepunished,longbeforeotherstockmarkets,whencredittroublesinAmericabrokeoutlastsummer.ThealarmispartlyovertheeffectsthatanAmericanrecessionmighthaveontheJapaneseeconomy.But,equally,itisoveradysfunctionalpoliticalestablishmentathomethatisincapableoffacinguptoaweakeningeconomy.PessimismisgrowingaboutthedamageanAmericanrecessionmightdo.LastyeargrowthinexportstoEuropeandChinamorethanoffsetanexportslowdowntoAmerica.ButtheUnitedStatesisstilltheend-marketformanyJapanesegoodsthatgotoChina.ArecentslackeningofshipmentsofsemiconductorsandsteeltoChinadoesnotbodewell.IfJapan'ssix-yearrecoverywerebroad-based,thatwouldnotbesuchaconcern.Yetithasbeenpulledalongbyexports,anddespiterepeatedpredictions,householdspendinghasfailedtotakeoff.Thereasonisclear:thoughemploymenthassteadilyincreased,wagesarestagnantorfalling,sincecash-richcompaniesinsistonhoardingtheirprofits—andwillpresumablycontinuetodosonowthatdeareroiliseatingintomargins.Perhapsthathoardingisaninsuranceagainstunpredictablegovernment.Ayearago,inanattempttocrackdownonpredatorylending,thegovernmentallbutdestroyedtheconsumer-financeindustry.Farmoredamaginghasbeenasystemforvettingnewbuildingsthatwashurriedlyintroducedlastsummerinreactiontoarchitectsfakingdataforearthquake-proofing.Thehousingministrywasunabletogetnewsoftwareupandrunningintime,sonew-buildingapprovalscollapsed.Thejaw-droppingeffecthasbeentoknock0.6percentagepointsoffgrowth,accordingtoTakatoshiItoofTokyoUniversity,whositsonthegovernment'sadvisoryCouncilonEconomicandFiscalPolicy(CEFP).Partlyasaresult,thegovernmenthaslowereditsforecastforgrowthinthefiscalyeartotheendofMarch,from2.1%to1.3%.SomeeconomiststhinkJapanisalreadytippingintorecession.Butthelonger-termpictureismoreworrying.MrItoarguesthatifJapanpursuedthekindofsupply-sideandtaxreformsthattheCEFPhaslongproposed,thecountrycouldgrowatarespectable2%ayear.Withoutthosereforms,growthwillcrawlalongat1-1.4%.HopesofsensiblepolicyhavevanishedsincetheoppositionseizedcontroloftheupperhouseoftheDiet(parliament)lastJulyandYasuoFakuda'srulingcoalitionappearstolackthecourageforreform.Now,theBankofJapan(BoJ)isaddingtotheuncertainty.Atitspolicy-boardmeetingthisweek,thecentralbankwasreluctanttoadmitthatrealitywasatoddswithitsbullishview,thoughitacknowledgedthatmomentumhadslowedsinceitslastoutlookinOctober.Insisting,onceagain,thatmonetarypolicyshouldbe“forward-looking”,itsgovernor,ToshihikoFukui,seemedtoaffirmthat,farfromcuttingratesasothercentralbanksaredoing,theBoJstillhopedtoraisethemfromunnaturallylowlevels.MrFukui'stermendsonMarch19th,andsomehowJapan'swarringpoliticalpartiesmustsettleonasuccessor.Withaslowingeconomy,theBoJ'sconductofmonetarypolicyisabouttobecomeintenselypoliticised.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nSociétéGénéraleSocked,notgentlyJan24th2008FromTheEconomistprinteditionAFrenchbankishitbymassivefraudTROUBLEhadbeenexpectedbutnothinglikethis.WidespreadconcernsthatSociétéGénérale,alargeFrenchbank,hadmoresubprime-relatedproblemstorevealwereprovedrightonJanuary24thwiththeannouncementofa€2.05billion($3billion)write-downonitsexposuretomortgage-relatedinvestmentsandtocreakingbondinsurers.Butthosenumberswereaside-showtosomethingfarmoreshocking.Thebankalsodisclosedthatasingletrader,JérômeKerviel,hadrackedupafurther€4.9billionlossbytakingunauthorisedbetsonfutureslinkedtoEuropeanstockmarkets.TradinginSocGen'sshareswastemporarilysuspendedonJanuary24th,butpunishmentwasboundtobesevere.Thebankcanatleastclaimtohaveactedquickly.ThefraudwasdiscoveredonJanuary19thandthepositionswerequicklyunwound,whichmayhavecontributedtothisweek'sfinancialturmoil.Thetrader,whohasfled,hasbeensackedandnowfaceslegalaction.Hissupervisorsarealsopickinguppinkslips.Thebankalsosaiditwouldfixitstatteredbalancesheetbyraising€5.5billion-worthofsharesinarightsofferunderwrittenbyJPMorganandMorganStanley.Despiteaprecipitousfallinearnings—SocGenexpectsits2007profittostandatjust€600m-800m—thebankaffirmedplanstopayadividend.YethugequestionmarksremainoverSocGen—includingoverwhetheritcansurvivealone.Thebank,asithasto,saysthefirehasbeencontained.Thefraudwas“exceptionalandisolated”;procedureshavebeentightenedandrevised.Butthosereassurancesringhollow.Thesheerscaleofthefraudisbreathtaking.Forcomparison,NickLeeson,themanwhobroughtdownBaringsBankin1995,hadlostapaltry£860m($1.4billion).IttookYasuoHamanaka,acoppertrader,tenyearsofhardworktoloseSumitomo$1.8billion.SocGenclaimedthatitsroguetraderhadbeencoveringhistracksbycreatingaseriesoffictitioustransactions,usingdarkartslearnedduringaspellinmiddlemanagement.Evenso,market-watchersexpresseddisbeliefthatsuchhugepositions,ininstrumentsthatthebankitselfdescribedas“plainvanilla”,couldhavebeenbuiltunnoticed.Allthis,toboot,atthebankheraldedasequity-derivativeshouseoftheyearbytheBankermagazinein2007.Suspicionwillalsoinfectotherbanks.CréditAgricole,anotherFrenchbank,owneduptoanunauthorised€250mtradinglossatitsinvestment-bankingarminSeptember.BNPParibaswasquicktosaythattheprocessofclosingitsbooksfor2007hadnotturnedupanythingunusual.Butthespectreoffraudwillonlyaddtofearsaboutthequalityofallbanks'riskmanagement.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nEconomicsfocusFaultypowersJan24th2008FromTheEconomistprinteditionIsmonetarypolicystillapotentweaponagainstrecession?WRITINGinSlatemagazinein1997,PaulKrugman,anAmericaneconomist,neatlycapturedthewidespreadbeliefintheomnipotenceofthethen-chairmanoftheFederalReserve.“IfyouwantasimplemodelforpredictingtheunemploymentrateintheUnitedStatesoverthenextfewyears,hereitis:itwillbewhat[Alan]Greenspanwantsittobe,plusorminusarandomerrorreflectingthefactthatheisnotquiteGod.”FaithintheFederalReserveisnotwhatitusedtobe.SinceSeptembertheFedhascutitspolicyrateby1.75percentagepoints,to3.5%.Itstillhasplentyoffirepowerleft—ratesaresomewayabovethe1%levelreachedin2003—butfewseemwillingtorelyonmonetarypolicyalonetosavetheday.PoliticiansandpunditsalikeweremakingacaseforafiscalstimuluspackageevenbeforetheFed'ssurpriseratecutonJanuary22nd.ThatBenBernanke,theFedchairmantoday,hasgivenhisblessingtotheplanonlyaddstotheimpressionthatcentralbankshavelosttheirgrip.Whatliesbehindthislossoffaith?Onecauseisthefeelingthatoverlyloosemonetarypolicygottheeconomyintothismess.Repeatedcutsininterestratesduringthelastdownturn,in2001-03,fuelledthehousingandcreditbubblesthatarenowburstingtosuchdamagingeffect.Thelegaciesofthatboom—fallingassetprices,highconsumerdebtandbanklosses—maynowhampertheabilityofcentralbankstopropupspending.Oneofthewaysthatcentralbanksaffecttheeconomyisthroughtheirinfluenceonthepriceofassets,likesharesorhomes.Otherthingsbeingequal,areductioninshort-terminterestratesshouldbumpupassetvalues,becausetheirstreamoffutureearningsisdiscountedbyasmallerfactor.NowthatAmerica'shousingboomisending,theworryisthattheFedislessabletostimulatethespendingthatcomeswithrisinghousingwealth.Assetsarealreadydear,itissaid;therearenobubbleslefttoreflate.Fallinghomepricesmakeforanationofsavers,notshoppers.Andfirmsarenotkeentoinvestwhenthemarketvalueoftheirassetsisshrinking.Fallingassetpriceshurtthemarketforcredittoo,interferingwithanotherpolicychannel.Monetarypolicyaffectsthechoicebetweenspendingnoworspendinglaterand,forthecash-strapped,creditprovidesthebridgefromthepresenttothefuture.Interestratesarethecostofusingtomorrow'sincometopayfortoday'sspending.Lowerratesliftspendingbymorewhenthereisaccesstoborrowing.Firmsandhomeownerscanborrowcheaplywithgoodcollateral,butfundsarelessabundantwhenassetvaluesarefalling.Consumersmayinanycasehavehadtheirfillofborrowing.HouseholddebtinAmericahasvaultedtomorethan130%ofdisposableincomefromlessthan100%in2000(seeleft-handchart).InBritaintheratioishigherstill.Andevenifcreditdemandholdsup,banksreelingfromsubprime-relatedlossesarelesswillingtosupplyit.\nAnotherstrainofpolicypessimismarguesthatinterest-ratecutswillonlyfuelinflation,withouthelpingtheeconomy.InfactitseemslikelythatAmerica'seconomicslowdownwillcreateenoughslacktoeaseinflationarypressure.That,atanyrate,seemstobethejudgmentofthebondmarkets.InthemonthssincetheFed'sfirstratecutinSeptember,ten-yearbondyieldshavedroppedsteadily,incontrasttothereactiontotheratecutsinearly2001,whenbondyieldsdriftedupwards(seeright-handchart).ThedistantsoundofwhirringrotorsCentralbanksarenottoothless,however.Theycanstillaffectspendingbyalteringthereturnsofexistingsaversandborrowers.Lowerinterestratesincreasethedisposableincomeofdebtors,bycuttingtheirrepayments,evenastheyeatintosavers'cashflow.Borrowersarelikelytospendmoreoutofeachadditionaldollar,sotiltingthescalesintheirfavourbycuttingratesshouldboostdemand.InAmericathehouseholdsector'sdebthasgrownfasterthanitsstockofinterest-bearingassets,sothecashflowchannelisnowlikelytobemore,notless,powerful.TheeffectisprobablystrongerstillincountriessuchasBritainandSpain,wheremostmortgageratesarecloselytiedtopolicyratesorfixedforonlyshortperiods.Althoughtheasset-priceandcreditchannelsaremoreconstrictedthaninthepast,monetarypolicycanstillworkthroughthem.Interest-ratecutsareunlikelytolifthouseprices,buttheymayatleastarrestthesizeandpaceofpricefalls.Thefirmsandhouseholdsthatarelessburdenedbydebtwillbeabletotakeadvantageoflowerinterestrates,evenasothersarestrugglingtoreducetheirborrowing.IftheFedstillhassomeclout,whytheclamourforfiscalstimulus?Inanelectionyear,politicsisoneobviousfactor,buteconomicargumentscanalsobebroughttobear.Oneattractionisthatiteasestheover-relianceonmonetarypolicy.AlanBlinder,aPrincetonprofessorandformerFedgovernor,alsoargues*thatfiscalremediescanboostdemandmorequicklythaninterest-ratecuts.Taxbreaksworkwelliftheybringspendingforward,saybytargetinghelponthepoor,whoaremorelikelytospendthansave—thoughthismaybehardtoarrangeinpractice.Thedrawbackisthatitleavesdecisionstopoliticians,whorisktakingtoolongtoagreeontherightpoliciesinaslumpandareunwillingtoraisetaxesinaboom.Althoughmonetarypolicyisnormallybestplacedtohelpstabilisetheeconomy,therearesomecircumstanceswherefiscalpolicycanhelp—duringlongordeeprecessions,whendemandsuddenlyslumps,orwheninterestratesfalltozero.Inthelattercase,writesMrBlinder,“acombinedmonetary-fiscaleffort—deficitspendingortaxcutsfinancedbyprintingmoney—maybeneeded”.ThisisMiltonFriedman's“helicopterdrop”ofmoney.OnlythenwilltheFedreallystarttofeelimpotent.*TheCaseAgainsttheCaseAgainstDiscretionaryFiscalPolicy.CentreforEconomicPolicyStudiesWorkingPaperNo100(June2004).\nCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nArtificiallifeNearlythereJan24th2008FromTheEconomistprinteditionGettyImagesThepenultimatesteptowardsthecreationofartificiallifehasjustbeenannouncedGetarticlebackgroundLIKEastripteaseartistinfrontofaneageraudience,CraigVenterhasbeendroppingveilsoverthepastfewyearswithouteverquiterevealingwhatpeoplearehopingtosee:theworld'sfirstartificialorganism.Hehasbeendiscussingmakingonesince1995,whenheworkedoutthefirstcompletegeneticsequenceofanaturallivingorganism.And,afteralotofhardgraftandblindalleys,heandhisteamhavealmostgotthere.Astheyreportinthisweek'sScience,theyhavereplicatedthegenomeofMycoplasmagenitalium,thespeciesthatwasthesubjectofthatoriginalsequencingeffort.Itisnotactuallife,butitissurelytheteasebeforethelastveilfinallyfallsaway.ThoughDrVenter(picturedaboveatthehelmofhisyacht,SorcererII)isthepublicfaceoftheeffort,andthe17-strongteamthatdidtheworkareallemployedbytheJ.CraigVenterInstituteinRockville,Maryland,thesyntheticgenomeprojectisequallythebrainchildofhiscollaborator,HamiltonSmith.Indeed,itisinDrSmith'snamethatthepaperannouncingthesynthesisispublished—along,ofcourse,withthe16othersincludingDrVenterhimself.Itisaformidableeffort.Butwhatis,perhaps,mostnoteworthyisthatthestartingpointfortheprojectwasnottherawnucleotides(thechemicallettersofwhichDNAiscomposed),butasetofpre-assembled“cassettes”ofDNAthattheteamhadorderedfromcommercialsuppliers.ThepointwhereanyTom,DickorHarrietwithareasonablywellequippedgeneticslaboratorycoulddolikewiseisnot,therefore,thatfaroff.AllyoucreateM.genitalium'sgenomeisasingle,circularchromosomethatis580,076letterslong,andcontains485protein-codinggenes.Theteamdivideditonpaperinto101units(thecassettes),eachcontainingfourorfivegenes.Theyalsotooktheprecautionofeditingonegeneinparticular,sothatitwouldnotwork.ThegeneinquestioniscrucialtoM.genitalium'sabilitytosticktomammaliancells,andthusbecomeinfective(itlivesnaturallyintheurinarytractandisthoughttocauseurethritis).Disruptingitthusforestalledtheriskofcreatinganythingnasty.\nTheteamplacedordersforthecassetteswiththreefirmsthatturnsuchthingsoutroutinely.Theythenusedavarietyoftechniques,someoldandsomespeciallyinvented,tolinkthecassettestogetherintolargerandlargerunitsuntiltheyhadtwohalfchromosomeswhich,withtheaidofsomeyeastcells,theyturnedintoawholeone.Allthatremainstocreatewhatmostresearchersinthefieldwouldbewillingtorecogniseasanartificialorganismistoinsertsuchachromosomeintoabacterialcellthathashaditsownchromosomeremoved.Atthemoment,nooneiscleverenoughtomakeallofthecellularmachinerythattranslatesgenesintothestuffoflife.Hencetheneedforthisshortcut.Butifthenewlyreconstitutedcellwereabletogrowandreproduce,thenatureofitsprogenywouldbedictatedbytheimplantedchromosome.That,notthenatureofthehost“shell”,woulddefinethespeciesoftheprogeny.DrVenter'spurposeinsynthesisingartificialgenomesistwofold.Scientifically,hewantstounderstandhowlifeworks.Onewaytodothisistodiscoverwhathereferstoastheminimalgenome.ThisisaPlatonicidealoflife,whichwouldcontainonlythegenesabsolutelynecessaryforsurvivalandreproduction,andmightshedlightonthenatureofLuca,thelastuniversalcommonancestoroflifeonEarth.Inpractice,thatidealisdifficulttorealise,sincemanygenescoverforeachother.Heknowsthat100ofM.genitalium'sgenescanbeeliminatedindividuallywithoutkillingit,buteliminatealloftheseanditdies.Assemblingmix-and-matchgenomeswithlotsofdifferentcombinationsofcassettesthateachcontainbutahandfulofgenesshouldshedlightonthequestion.ButDrVenterisalsoapracticalman,whowantstoturngenomicsintotechnology.Indeed,oneofhisotherenterprisesisafirmcalledSyntheticGenomicsandheisoneoftheleadinglightsoftheemergingfieldofsyntheticbiology.Thisseeks,amongotherthings,tocreateapartslistofbiologicalcomponentssuchasDNAcassettesthatcouldbeorderedfromcataloguesinthewaythatelectroniccomponentscanbe.SyntheticGenomicsitselfisabitcageyaboutexactlywhichmolecularproductsitisworkingon,butoneofDrVenter'sinterestsisinusingmodifiedbacteriatomakefuels.Naturalbugscanturnoutbothhydrogenandmethane.Thereistalkofmodifyingthemtoproducehigh-valueliquidfuels,forjets,say.Heisnotaloneinthisidea.SeveralCalifornianfirmsarealsoseekingtomakeadvancedbiofuelsusingmodifiedbacteria.ButifDrVentercantakethefinalstepofkickingthenew,whollysyntheticgenomeintoreproductivelife,hewillnotonlyhavemadeagreattechnologicalleapforward,hewillalsohaveerasedoneofthelastmythicdistinctionsinscience—thatbetweenlivingandnon-livingmatter.Watchingthatveildropwillhavebeenworththewait.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nMicroelectronicsEyeingupanewtechnologyJan24th2008FromTheEconomistprinteditionA“bionic”eyelenspointstoanewwayofbuildingmicroelectroniccircuitsCONVENTIONALcontactlensesaregoodatcorrectingvision.That,however,isnotenoughforBabakParviz.DrParviz,whoworksattheUniversityofWashington,inSeattle,wantstogetthemtoprovideinformation,too.Hismodelisthe“head-up”displaysofusefulinformationonthewindscreensofaircraft.Puttingsuchdisplaysintolensesmightbevaluableforbothsoldiersandcivilians,butshrinkingthetechnologytothepointwhereitcouldbedonehasprovedhard.Lastweek,however,ataconferenceinTucson,Arizona,organisedbytheInstituteofElectricalandElectronicsEngineers,DrParvizrevealedthathewasgettingclose.Thelensesaremadeofpolyethyleneterephthalate(PET),thestuffusedinoverheadprojectionsheets.DrParvizusesPETbecausehisresearchhasshownthatmetalcircuitscanbesafelyattachedtoit.Thetrickisbuildingthatcircuitryinthefirstplace,becausethecomponents—mostnotably,light-emittingdiodes,orLEDs—havetobemadeathightemperaturesusingcorrosivegases.Theusualwayofdoingthis—onapieceofsiliconthatalsoservesasthecircuitboard—wouldnotworkonPET,whichwouldbealmostinstantlydestroyed.Instead,DrParvizusesatechniquehedevelopedtheyearbeforelast,andforwhichthisisthefirstapplication.Itworksbyetchingsmall,preciselyshapedholesinthePET.Theshapesoftheholesmatchthecomponents.Thosecomponentsaremadeelsewhere,usingconventional,plastic-hostiletechniques.Theyarethenmixedtogethertocreateagreypowderthatfloatsinalcoholoverthesurfaceofthelens.WhenacomponentisoveranappropriatelyshapedholeinthePET,itslipsintoposition.Inthisway,notonlycanLEDsbelaiddown,butalsotinysolarpanelsandantennaethatconvertradiowavesintoelectricalenergy.Everythingisthusinplaceforadisplayunitthatcanbothextractpowerfromtheoutsideworldandalsoreceivesignalsfromit.AllthatneedthenbedoneistoencapsulatetheresultinPerspex—thematerialfromwhichhardcontactlensesareroutinelymade—toprotectthecircuitrywithoutharmingthewearer'seye.Lastly,thewholeassemblyisheatedonanaluminiummould,sothatitfitstheeyeballofthewearer.Atthemoment,DrParviz'sprototypedoesnotproduceausefulimage.Thatwouldrequiremuchmorecomplicatedcircuitrythanhehasbuiltsofar.ButhecanmaketheLEDsflashonandoff,sotheprincipleseemstowork.Thenextstageistogetsomeonetotryoneofthelenseson.That,intoday'srisk-averseworld,requiresregulatoryapproval.Butevenbygettinghisself-assembledscreenofLEDstoflash,DrParvizhasshownthatcircuitscanbebuiltatroomtemperaturethisway.Andthat,ratherthanthedetailsofthisbionic-eyelens,istherealpointoftheexercise.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nOrgantransplantsAsuccessfulmixtureJan24th2008FromTheEconomistprinteditionTransplantingimmune-systemstemcellsalongwithkidneysstopsrejectionWOEtothepatientwaitingforsomeonetoofferupaspareorganfortransplantation.DemandsofarexceedssupplythesedaysthatinAmericaalonearound17peopledieeverydaywhilelanguishinginthequeue.Nordoproblemsendthere.Eventheluckyones,whodogettheirdesiredreplacementpart,facealifetimeonimmunosuppressantdrugs,tostopthealientissuebeingrejectedbytheirownimmunesystems.DavidSachsandBenedictCosimi,ofHarvardMedicalSchool,havebeenworkingforsometimetofindawayaroundtheseproblems.Theirgoalhasbeentotrickthebodyintothinkingthataforeignorganisreallyanativeone,sothatitsimmunesystemrefrainsfromrejectingtheforeigner.Inthisweek'sNewEnglandJournalofMedicinetheyreportasmallbutpromisingstudythat,ifconfirmedonagranderscale,maydealwiththeissueonceandforallandusherinaworldinwhichimmunosuppressantdrugsareunnecessaryandorgansnolongerneedbematchedtopatients.Thatwouldmakethelivesoftransplantpatientseasierandlonger,andmightalsoincreasetheusefulsupplyoforgansavailablefortransplant.DrSachsandDrCosimitrickedthebodybytransplantingapartofthedonor'sbonemarrowalongwiththeorgan.Sincethecellsoftheimmunesystemarederivedfromstemcellsinthebonemarrow,thesepatientsgoontodevelopwhatisknownaschimericimmunity,whichblendselementsfromtheimmunesystemsofboththedonorandtherecipient.Theprocessbeginswiththepartialdestructionoftherecipient'sownbonemarrowusingadrugcalledcyclophosphamide,followedbytreatmentwithanantibodythatdepleteshissupplyofTcells,thepartoftheimmunesystemthatismostimplicatedinorganrejection.Oncethatisdone,theorgan(inthiscaseakidney)andthebonemarrowaretransplantedandthepatientisconfinedforafortnightinasterileenvironmenttoprotecthimfrominfectionwhilehisnew,mixedimmunesystembootsup.DrSachsandDrCosimitriedtheirnewprocedureonfivepeopleanditworkedforfourofthem(thoughtheydidmodifytheprocessslightlyafterthethirdpatient,byincludingantibodiesagainstBcells,asecondpartoftheimmunesystem).Oneachoccasiontheytransplantedakidneythatwas,immunologicallyspeaking,apoormatchfortherecipient.Andineachofthefoursuccessfulcasestheywereabletakethepatientoffimmunosuppressantdrugswithin8-14months,withnosignofrejection.Allfourofthesepatientsarestillalive;indeed,thefirsthasnowsurvivedformorethanfiveyears.(Theonefailurelaterreceivedastandardtransplant,followedbyapermanentregimenofimmunosuppressantdrugs,andisalsostillalive.)Althoughthetechniquelookspromising,itisamysterywhyitshouldwork.Youwouldthinkthatachimericimmunesystemwouldbemoreactive,notless,andwouldthereforeattacktherecipient'sotherorgans,sincetheylookforeigntothetransplantedimmunecells.Notso.Norisitclearhowthetransplantedimmunecellsstoptheexistingonesfromattackingtheneworgan.And,theimmunesystemdoesnotstaychimericforever.Eventually,theoriginalonepredominatesandthetransplantedonevanishes(or,atleast,becomesundetectable).Yetthetransplant'sprotectiveeffectpersistswithnosign,asyet,ofdiminishing—andthereiseveryreasontobelieve,basedontheresultsofexperimentsonmonkeys,thatitwillnotdiminishinthefuture.Foursuccessesarenot,ofcourse,proofofareliabletechnique.Andeveniftheapproachworksforkidneys,ithasyettobetestedforotherorgans.Neitherdoeseliminatingrejectionincreasethesupplyoforgansfortransplant,eventhoughitmeansthatfewerwillbewasted.ButDrSachsandDrCosimihaveasuggestionhere,too.Theyhopetheirdiscoverymayalloworganstobetransplantedfromotherspecies,suchaspigs,andhavefiledapatentbasedontheidea.\nXenotransplantation,asthisideaisknown,reallywouldincreasethesupplyoforgans,butitisacontroversialidea.The“yuck”factorthatcross-speciestransplantswouldprobablyprovokewouldsurelyfadeiflivesweresaved.However,xenotransplantationbringstheriskoftransplantinganimalvirusesandthuscreatingnewhumandiseases.Itwouldbeanironyifsomethingintendedtopreservelivesendedupdestroyingthem.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nPhysiognomyandsuccessFacevalueJan24th2008FromTheEconomistprinteditionWhatthebosslookslikedetermineshowheperformsACOUPLEofyearsagoagroupofmanagementscholarsfromYaleandtheUniversityofPittsburghtriedtodiscoveriftherewasalinkbetweenacompany'ssuccessandthepersonalityofitsboss.Toworkoutwhatthatpersonalitywas,theyaskedseniormanagerstoscoretheirbossesforsuchtraitsasanabilitytocommunicateanexcitingvisionofthefutureortostandasagoodmodelforotherstofollow.Whenthedatawereanalysed,theresearchersfoundnoevidenceofaconnectionbetweenhowwellafirmwasdoingandwhatitsbosswaslike.Asfarastheycouldtell,acompanycouldnotbejudgedbyitschiefexecutiveanybetterthanabookcouldbejudgedbyitscover.Afewyearsbeforethis,however,ateamofpsychologistsfromTuftsUniversity,ledbyNaliniAmbady,discoveredthatwhenpeoplewatchedtwo-second-longfilm-clipsofprofessorslecturing,theywereprettygoodatdetermininghowableateachereachprofessoractuallywas.Attheendofthestudy,theperceptionsgeneratedbythosewhohadwatchedonlytheclipswerefoundtomatchthoseofstudentstaughtbythoseself-sameprofessorsforafullsemester.Now,DrAmbadyandhercolleague,NicholasRule,havetakenthingsastepfurther.Theyhaveshownthatevenastillphotographcanconveyalotofinformationaboutcompetence—andthatitcandosoinawaywhichsuggeststheassessmentsofallthoseseniormanagerswerepoppycock.DrAmbadyandMrRuleshowed100undergraduatesthefacesofthechiefexecutivesofthetop25andthebottom25companiesintheFortune1,000list.Halfthestudentswereaskedhowgoodtheythoughtthepersontheywerelookingatwouldbeatleadingacompanyandhalfwereaskedtoratefivepersonalitytraitsonthebasisofthephotograph.Thesetraitswerecompetence,dominance,likeability,facialmaturity(inotherwords,didtheindividualhaveanadult-lookingfaceorababy-face)andtrustworthiness.Byauseful(thoughhardlyunexpected)coincidence,allthebusinessmenweremaleandallwerewhite,sotherewerenoconfoundingvariablesofraceorsex.Thestudyevencontrolledforage,theemotionalexpressioninthephotosandthephysicalattractivenessoftheindividualsbyobtainingseparateratingsofthesefromotherstudentsandusingstatisticaltechniquestoremovetheireffects.Thismaysoundlikevoodoo.Psychologistsspentmuchofthe20thcenturydenigratingtheworkof19th-centuryphysiognomistsandphrenologistswhothoughttheshapesoffacesandskullscarryinformationaboutpersonality.However,recentworkhasshownthatsuchtraitscan,indeed,beassessedfromphotographsoffaceswithareasonableaccuracy.AndDrAmbadyandMrRuleweresurprisedbyjusthowaccuratethestudents'observationswere.Theresultsoftheirstudy,whichareabouttobepublishedinPsychologicalScience,showthatboththestudents'assessmentsoftheleadershippotentialofthebossesandtheirratingsforthetraitsofcompetence,dominanceandfacialmaturityweresignificantlyrelatedtoacompany'sprofits.Moreover,theresearchersdiscoveredthatthesetwoconnectionswereindependentofeachother.Whentheycontrolledforthe“power”traits,theystillfoundthelinkbetweenperceivedleadershipandprofit,andwhentheycontrolledforleadershiptheystillfoundthelinkbetweenprofitandpower.Thesefindingssuggestthatinstantjudgmentsbytheignorant(nobodyevenrecognisedWarrenBuffett)aremoreaccuratethanassessmentsmadebywell-informedprofessionals.Itlooksasifknowingachiefexecutivedisruptstheabilitytojudgehisperformance.Sadly,thecharacteristicsoflikeabilityandtrustworthinessappeartohavenolinktocompanyprofits,suggestingthatwhenitcomestobusinesssuccess,beingwarmandfuzzydoesnotmattermuch(thoughthesetraitsarenotharmful).Butthisresultalsosuggestsyetanotherthingthatstockmarketanalysts\nmightcaretotakeintoaccountwhenpreparingtheirreports:thephysogofthechiefexecutive.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nRupertMurdochSpendsome,thenspendsomemoreJan24th2008FromTheEconomistprinteditionReutersNewsCorporation'sambitionshavebeenthwartedinChinabyfearfulofficialsandcannybusinessmen.ButRupertMurdochhasnotquitegivenupFARearlierthanmany,RupertMurdochsensedthatChinamightbeauniqueRupert'sAdventuresfinancialprize.Evenonhisfirstvisitinthemid-1980s,withhisthenwife,Anna,inChina:Howandtheirschool-agechildren,theAustraliannewsmagnatedinedwiththeMurdochLostaleadership.FortuneandFoundaWifeFormuchofthenext20years,MrMurdochtriedtoconquerChina.HisinitialaimByBruceDoverwastocreateasatellitetelevisionnetworkthatwouldabsorbashareoftheadvertising,nowestimatedatabout$50billionayear,thatwassoldonstate-ownednewsmedia.TheChineseencouragedhimandthenpulledback.Ultimatelytheyoutmanoeuvredhim,beatinghimathisowngame.MrMurdochhopedthatthemoreheinvested,thesoonersatellitedisheswouldbesproutingfromeveryChineserooftop.Butsatellitedishesarestillregulated,evenifnotasstrictlyastheyoncewere.BruceDover,anAustralian,wasMrMurdoch'smaninBeijinguntil1998.HehasMainstreamPublishing;writtenarareinsider'saccountofhowtheChinesegotthebetterofa304pages;£18.99businessmanwhousuallygetswhathewants.MrMurdochfeltthatifonlyheBuyitatcouldmeetPresidentJiangZeminallwouldbefine,MrDoverwrites.Eventually,Amazon.co.ukMrMurdochdidgettospendtimewiththepresident;quiteabitofit,infact.Theygotonwell.MrMurdochtreatedtheChineseleader,afilmfan,toanexclusivescreeningof“Titanic”,whichhadbeenmadebyMrMurdoch's20thCenturyFox.TheChineselethiminvestlavishlyininternetandprogrammingcompanies,thusgivingthemprecioustechnicalknow-how.TheyparticularlyadmiredMrMurdoch'smanagementstructurebecauseitwasliketheirs:aSunKingatthecentrewithacolytesallaround.TheChinesewereexcellentbusinessmen,buttheywantedChina'sprofitsforChina.EvenwithinvestmentsingroundbreakingtelevisionproductioninChina,MrMurdochcouldnotwinforhimselftheconcessionsthatusuallycamewithpublishingfavourableeditorialsforpresidentsandprimeministersintheWest.TheMurdochcharmhadbeguiledthehighestlevelsofgovernmentinAustralia,AmericaandBritain.InChina,itfailed.MrMurdochdidmakesomegains.In2002hisStarTVwasgivenpermissiontosellprogrammingforcablesystemsinGuangdongprovince.Butwhenthecompanytriedtoexpanditsdistributionbytheback\ndoor,usingtheremoteQinghaiprovinceasabaseandexploitingaregulatoryloopholetocircumventabanondomesticcable-televisionownerscarryingforeignbroadcasters,thegovernmentreactedswiftly.TheChinesepropagandadepartmentforcedStarTVtoclosedowntheoperation.TheQinghaifiasco,NewsCorporationstaffestimate,costStarTV$30m-60m.Thenin2003MrJiangwasreplacedbythelessamenableHuJintao.TwoyearslaterafrustratedMrMurdochannouncedhehadhita“brickwall”inChina.WhilecourtingtheChineseleadership,MrMurdochmetWendiDeng,atalentedexecutivewithanMBAfromYaleUniversity.MsDengwasborninmainlandChinaandworkedinthebusinessdevelopmentdepartmentatStarTVinHongKong.MrDoverintroducedthematacompanycocktailparty.Theymarriedin1999andMsDengbecameMrMurdoch'snewconnectiontoChina,thoughshepossessedlittleunderstandingoftheopaquepoliticsofherbirthplace.MsDengisnowinchargeofMySpace.cominChina.Likealldotcomoperationsthere,itisawardoftheChinesecensors.ButitremainsoneofthemostpromisingofNewsCorporation'snowlimitedChineseoperations.MrMurdochhascooledonChina.Inrecentmonthshehasfoundanewpassion,retoolingtheWallStreetJournal.FewNewsCorporationexecutiveshavewrittenabouttheirboss.MrDoverdoessoevenly,withoutvenom,andwithaquizzicaltonethatsuggestsMrMurdochwasalittlenaiveabouttheChinese.HetellsthereaderaboutMrMurdoch'sperpetualmotion,hismaniaforphoninghisexecutivesatallhours,andhowhekeepstabsonhis$70billionbusinessbyalwaystravellingwithabluefoldercontainingweeklyprint-outsofthefinancialstatusofhiscompaniesfromNewYorktoCairns.NoonehasstakedsomuchpersonalprestigeonthequestforChina,MrDoversays.Foreigncompanieshaveyettobeallowedintothe380mChinesehomesthathavetelevisions.Nownearly77,MrMurdochisbeginningtorecognisethatthismaynothappenonhiswatch.Rupert'sAdventuresinChina:HowMurdochLostaFortuneandFoundaWife.ByBruceDover.MainstreamPublishing;304pages;£18.99Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nDoingbusinessinChinaBythebookJan24th2008FromTheEconomistprinteditionChoosewiselyfromthetorrentofbooksondoingbusinessinChinaBUSINESSbooksonChinaarepublishedsofrequentlythesedays,itseemsthereisasecretfactorychurningthemout.Toomanyreadlikethemassproducedgoodsforwhichthecountryisfamous—andtoofewarewrittenfromrealexperienceoflivinginChina.ManagingtheDragon(Crown;$27.50),JackPerkowski'sstoryofhisalmost13yearsrunningAsimco,anautomotivecomponentsmaker,inChinaisthereforeararetreat—afirst-handaccountofthestruggletobuildabusinessthere.TimClissold,MrPerkowski'sformercolleague,hasalreadydescribedhowAsimco'sChinesepartnerscheateditoutofmillions,inhisriveting2004book,“MrChina”.ButMrPerkowskihungon,andhiswiseandultimatelyoptimisticaccountshouldberequiredreadingforanyonestartingabusinessinChina.MrPerkowskiissensibleoneveryissue—fromtheneedtonurture(andlistento)localmanagerstotherelativeimportanceoflocalovercentralgovernmentrelations.Mostofall,foreignersmustnotshuntheimpossiblycut-throatlocalmarketbecausethepricepaidforaproductinChinatodaywillbeitspricegloballytomorrow.ThisiswhatTheChinaPrice(PenguinPress;$25.95)isallabout.AsaformerFinancialTimesjournalistcoveringthePearlRiverDelta,AlexandraHarneyvisitedscoresoffactoriesintheworkshopoftheworld,talkingtoowners,workersandWesternbuyers.Heraccount,packedwithlocalcolour,helpsreaderssmellthesweatontheshopfloor.ButMsHarney'sbleakconclusionthatcheapWesterngoodsareboughtatthecostofworkerexploitationinChinaispredictableandnaive,flyinginthefaceofthemigrationofmillionsfromruralmiserytothecomparativerichesofferedinaGuangdongfactory.ThereisagloomymessagetooinBewaretheDragon(AndréDeutsch;$37.25and£18.99).ErikDurschmied,aveteranwarcorrespondent,gallopsthrough1,000yearsofChinesehistoryandseesonlymiseryandbloodshed,fromGenghisKhantotheKoreanwar.Apparently,themainlandwasevenresponsibleforthebubonicplaguein14th-centuryEurope,whichspreadwestfromunburiedcorpsesafteranearthquakeinsouthernChina.MrDurschmiedconcludesthatChinawillcausemoreupheavalinfuture,thoughhecannotdecidewhetheritwillattackarival,suchasJapan,startatradewarthatbecomesarealwar,orsimplyimplodeanddragothersintoitscivilinfighting.AmorereassuringperspectiveonwhetherChinacanrisepeacefullytosuperpowerstatusisprovidedbyDavidKang,aprofessoratDartmouthCollege,NewHampshire.Hearguesconvincingly,ifdryly,inChinaRising(ColumbiaUniversityPress;$24.95and£14.95)thatwhiletheascentofagreatpowershouldbedestabilising,China'seconomicrisesince1978hasanchoredEastAsia'sprosperity—andthatmostothercountriesintheregionpreferastrongChinatoaweakone.EvenJapanandAmerica,hepredicts,willacceptthisrealityintime.OflessvaluetostudentsofChinaaretwobooksthatpurporttoprovidethemostvalueofall.BothABullinChina(RandomHouse;$26.95,JohnWiley;£14.99)byJimRogers,whoshottofameasthe“investmentbiker”andFromWallStreettotheGreatWall(Norton;$26.95and£16.99)byBurtonMalkielandPatriciaTaylor,claimtheywillhelpreaderstoprofitfromChina'sboom.ButtheirtutorialsonthemeritsofvariousmainlandassetsarecursoryandMrRogers'svirtualtippingofindividualsharesforanAmericanaudienceseemsdownrightirresponsible.IfproofwereneededthatthereisabubbleinChinesestocks,thisisit—andthatgoesforbooksonChinatoo.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nChineseandIndiancapitalismShiftingthebalanceJan24th2008FromTheEconomistprinteditionFIVEyearsago,TarunKhanna,anIndian-bornprofessoratHarvardBusinessBillionsofSchool,grabbedattentionwithanarticleinForeignPolicymagazinespeculatingEntrepreneurs:HowthatIndiamighteventuallyovertakeChina.Co-writtenwithYashengHuang,aChinaandIndiaareChinese-AmericanscholarattheMassachusettsInstituteofTechnology,theReshapingTheirarticlearguedthatIndia'seconomicmodeloffersmorefreedomtoentrepreneursFuturesandYourswhichcouldhelpthecountryoutpaceitsfellowAsiangiantinthelongerterm.ByTarunKhannaFromamacroeconomicviewpoint,thisargumentwasratherimplausible,exceptintheextremelylongterm,forChina'seconomyisalreadythreetimesthesizeofIndia's.Atthecorporatelevel,though,itmademoresense:asitsrecentunveilingoftheworld'scheapestcarshowed,companiessuchasTataMotorspromisetomaketheglobalgraderatherfasterthantheirChinesecounterparts.WithhisnewbookMrKhannahasreturnedtothetopicofentrepreneurshipinAsia'semerginggiants.ButhehasdroppedtheideaofIndiaoutpacingChinaandHarvardBusinessSchoolreplaceditwiththoughtsaboutthepotentialforco-operationbetweenthetwoPress;352pages;$29.95countries.Theirsocialandeconomicsystemsarevastlydifferent,asheshowsinBuyitatadmirablydetailedbutchattystudiesofcompaniesandcitiesinbothplaces.ButAmazon.comtheyhavestrengthsthatcouldbecomplementary,hethinks,andhearguesthatAmazon.co.ukforeignmultinationalsneedtostartthinkingaboutthecountriestogetherratherthanseparately.Unfortunately,thebook'senthusiasmforSino-Indianco-operationisratherunconvincing.Tradebetweenthetwocountriesisrisingfast,asMrKhannapointsout,butfromaverylowbase:itisonlyatenthaslargeastradebetweenChinaandJapan,andafifthaslargeasthatbetweenChinaandSouthKorea.ChinesecompanieswanttolearnaboutIndiansoftwareandoutsourcing,justasIndiancompanieswanttolearnaboutChinesemanufacturingprowess.ButthencompaniesinbothcountriesarealsoeagerlystudyingpracticesandskillsinEurope,AmericaandJapantoo:thereisnothingparticularlyspecialabouttheflowofpeopleandideasbetweenIndiaandChina.Politics,too,playsapart.MrKhannamakesmuchoftheopeningofabordercrossinghighintheHimalayastotradein2006,forthefirsttimesincetheSino-Indianborderwarof1962.Yetthatcrossingdoesnotconnectanyofthelargeareasthatarestilldisputedbetweenthetwocountries,andonlyafewcategoriesofgoodsmaybetradedthroughthereopenedarea.RelationsbetweenChinaandIndiahaveindeedbeengettingwarmerinrecentyears,butthepairstillharbourstrongandunderstandablesuspicionsaboutoneanother:theyarenaturalrivals,whetherinAsiaasawholeorinthecountriessqueezedbetweenthem,asthebook'sexcellentsectiononMyanmardemonstrates.Nevertheless,althoughthebook'soverallthesisfeelsasimplausibleasthatofMrKhanna's2003ForeignPolicyarticle,“BillionsofEntrepreneurs”remainswellworthreading.Theeyeofthisbusiness-schoolprofessorforinterestingstoriesissharpandheoffersilluminatingexplanationsofwhyIndiaandChinaworkinthewaysthattheydo.BillionsofEntrepreneurs:HowChinaandIndiaareReshapingTheirFuturesandYours.ByTarunKhanna.HarvardBusinessSchoolPress;352pages;$29.95Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nNewfilm:“Katyn”UnburieddeadJan24th2008FromTheEconomistprinteditionPoland'shistoricalepicinthelimelightACRIMEandaliearethetwinstrandsintheshamefultragedyofKatyn:themassacreof20,000PolishofficersbytheSovietsecretpolice,andthecover-upthatfollowed.NowAndrzejWajda,Poland'sleadingfilmmaker,hasmadehislastfilm(heis81)aboutwhathecallsthe“unhealedwound”inhiscountry'shistory.MrWajda'sownfather,Jakub,wasmurderedatKatyn,aswerefamilymembersofmanyoftheproductionteam.Thosekillingscomeinagruelling,15-minutefinalsequence.First,thefilmshowsinsombreandclaustrophobicdetailthePolishPOWs'travelstoGolgotha;theoccupationauthorities'vengeanceontheirfamilies,andflashesforwardtotheattemptsbythecountry'spost-warrulerstodisguiseanddefacethehistoricalrecord.Thefilmhasbeennominatedforbestforeign-languagefilmatthisyear'sOscars.ThosewatchingitshouldnotexpecttocomeawayhappilyhummingthedramaticthememusicbyKrzysztofPenderecki.“Katyn”isbasedonthelettersanddiariesofreal-lifevictims—unearthedwhentheNazisfirstcameacrossthemassgravesin1943.ThelastentryrecordsthePolishofficers'arrivalatthekillingfields.“Athoroughsearch.Theydidn'tfindmyweddingring.Theytookmybelt,mypenknifeandmywatch.Itshowed0630Polishtime.Whatwillhappentous?”Expertcinematography,compellingacting,andastorythatleavestheviewerbothsorrowfulandangry,areastrongcombination.Buttheymaynotbequiteenoughtoconvincethejudges.“Katyn”isfilmedfromanuncompromisinglyPolishpointofview.Someoutsidersmayfinditconfusing.Oneofthemostpowerfulscenes,forexample,isthemassarrestoftheprofessorsofCracowUniversitybytheGermans.ThosewhoalreadyknowabouttheupheavalthatfollowedtheGermaninvasionof1939willseethepoint:theSovietsandtheNaziswereaccomplices.Othersmaypuzzle.Themoraldilemmasofpost-warPolishcollaboratorsarebetterportrayedthanthoseofthewartimeoccupiers.Ifhonouringthedeadmeansdoomforyourfamily—orforyou—isitbettertokeepsilent?Polesfacedthatchoiceagainandagainafter1945,astheirnewrulersusedKatynasalitmustestofloyalty.ButbarringoneRedArmyofficer,impeccablyplayedbyaUkrainianactor,SergeiGarmash,whosaveshisneighbours(anofficer'swidowandchild)fromdeportation,theforeignersaresovillainousastobelittlemorethansinistermannequins.Melodramaisperhapsonefaultofthefilm;anoddlysanitisedpictureofdailylifeisanother.Teeth,complexionsandclothesallevoketheprosperousPolandoftodaymorethanthesqualorandhungerof1945.Materialdeprivationbringsouttheworstandthebestinpeople.Butitneedstobeshowntomakethemeasureconvincing.Astonishingly,someinRussiaarenowrevivingtheliethatthemurderersatKatynwerenotbytheNKVD,buttheNazis.Thatwasmaintainedduringthecommunistera,butonlybypunishingsavagelythosewhotriedtotellthetruth.Lastyear,asMrWajda'sfilmopenedinPoland,acommentaryinaRussiangovernmentnewspaper,RossiiskayaGazeta,dismissedtheevidenceofSovietinvolvementinKatynas“unreliable”.AnOscarwouldbeagoodanswertothat.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nNewfictionThewindsofwarJan24th2008FromTheEconomistprinteditionWEREitnotfortheauthor'sphotoonthejacket,fewwouldguessthatthiswarDaystorywaswrittenbyawoman.ThedetailsofRAFbombingmissionsoverByA.L.KennedyGermanyarescrupulous.Moreimpressivestill,A.L.Kennedyhasakeenfeelforthejoustingindirectionofmalebanter.Sheskilfullydepictsthediscontinuitybetweentheburstingemotionsofmen'sinteriorlifeandthechoked,inarticulatebleatingthatexpressesthem—orfailsto.“Day”waspublishedinBritainlastyearandwelldeservedtowinthe2007Costabookoftheyearaward,announcedthisweek.ThenovelhasjustcomeoutinAmerica.Youngandworkingclass,AlfieDayisattachedtohismotherandfearshewillnolongerbeabletoprotectherfromhisviolentfatherwhenheenlists.Knopf;288pages;$24.Nevertheless,withsuicidalbravado,hevolunteersasatailgunner.TheJonathanCape;£16.99countdowntoflyingthe30missionsthatwillcompletehisservicetothecrownBuyitatrecollectsthesamecountdowninJosephHeller's“Catch-22”:aracebetweenluckAmazon.comanddoom.Likewise,inportrayingtheairmen'sdistinctivelyintimatebond,“Day”Amazon.co.ukisinsomeways“Catch-22”withthehumourremoved.Butthen,bothauthorswouldconcurthattheircentralmaterialisn'tfunny.WhileonleaveAlfiefallsinlovewithayoungwomaninLondon.Sheisalreadymarriedtoaservicemanawayatwar.Anditisadisciplinenottopermithimselfthefantasythathewillsurvivetoclaimhissmallpatchofordinaryhappiness(perhapstoothatthehusbandwillnot),whenfantasisingaboutsurvivingtonextweekseemsanindulgence.Sureenough,onmissionnumber26Alfie'sbomberisdowned.Hiscomradesperish,andAlfiebecomesaGermanprisonerofwar.Providingthenovelwithitssophisticatedtexture,thestoryalternatesbetweenwarandtheparodyofwar—inthiscasethesetofamocked-upPOWcamp,whereAlfieisperformingasanextrainafilmfiveyearsafterthearmistice.Keepingtrackofthesetimeshiftstakesconcentration,sincetheauthorwillsometimesdeliberatelyblurthelinebetweenwarasgranddramaandwarasfarce.MsKennedymanagestomakeeverybattletruismfresh—inparticular,theclichéabouthow“youneverfeelsoalive”.Yetinrenderingtheguilt,numbnessandbewildermentofitsaftermath,shealsokillsoffanyfoolishtemptationtoenvytheintensityofwarfare.Day.ByA.L.Kennedy.Knopf;288pages;$24.JonathanCape;£16.99Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nParmigianinoattheFrickOneandonlyJan24th2008|NEWYORKFromTheEconomistprinteditionTheFrickCollection'snewexhibitionconsistsofasinglepaintingTHEFrickCollectionmayownsomeworld-famouspaintings,includingthreeVermeers,butitlacksthespacetoputonblockbustershows.Sostaginganexhibitionconsistingofjustonepicturehasitsattractions.“Antea”,byFrancescoMazzolaParmigianino(1503-1540),isaluxuriouslydressed,radiantyoungbeautywholooksstraightattheviewerwithamagneticallyarrestinggaze.ColinBailey,theFrick'schiefcurator,wasespeciallykeenonborrowingthisnearlyfull-lengthportraitfromtheCapodimontemuseuminNaples,becausehebelieveditwouldenergisetheFrick'spermanentcollectionandgivethemuseumachancetoproduceimportant,originalscholarship.MrBaileywasrightonbothcounts.Hangingonatemporary,free-standingwallinthemiddleoftheFrick'sOvalRoom,aglowing“Antea”beckonstovisitorsfromacrossthemuseum'ssepulchralGardenCourt.Quitewhothesitterwasremainsamystery.Thecatalogue,byChristinaNeilson,aRenaissancespecialistandFrickfellow,readslikeadetectivestory;thoughnotsomucha“whodunit”asa“whoisit”.ParmigianinohadbeendeadformorethanacenturybeforeGiacomoBarri,aVenetian-bornpainterandprintmaker,dubbedtheportrait“Antea”inhis1671oeuvre,“Viaggiopittorescod'Italia”(“Apainter'svoyagethroughItaly”).Barri'sassertionthatthesitterwasParmigianino'smistressunleashedspeculationthathasnotstoppedsince.IthasbeenclaimedinturnthatshewasafamousRomancourtesan,agarden-varietyprostitute,anaristocrat,aservant,anoblebride,thepainter'ssisteror,mostrecently,aman.MsNeilsontestseachclaimagainstcluesprovidedbyAntea'scostumeandjewellery,anddetailsfromcontemporarypoetry,aswellasotherworksofart.Intheprocessshere-datesthepaintingtobetween1531and1534(earlierscholarshadplaceditbetween1535and1537).Insupportofthis,MsNeilsoncitesthestrongresemblancebetweenthefaceof“Antea”andthatofoneofthelovelyangelsinanotherParmigianinoworkof1534,“MadonnaoftheLongNeck”.Thenthereisthesimilaritybetweenthelefthandin“Antea”andthoseintworedchalkstudiesdoneintheearly1530s.HerpuffedsleevesandplungingnecklinearealsosimilartothegowninBartolomeoVeneto's“PortraitofaLadyinaGreenDress”of1530.TheimportanceofyellowButitisherluxuriousapparelthathasthebiggestroleinthediscussionofAntea'sidentity.Thegownshewearsisyellow,thecolourprostitutesinmanyItaliancitieswereforcedtoweartodistinguishthemfromotherwomen.But,asMsNeilsonpointsout,in16th-centuryItaly—whencourtesansandaristocratsoftendressedalike—noblewomenhadalsotakentofavouringyellow.ThelavishrubyandpearljewelinAntea'shair,hasbeencitedasproofthatthesitterwasanobleyoungbride.MsNeilsonagreesthatsuchpendantsweresymbolsofloveandmarriage,addingthatParmigianinoevendrewdesignsforthem.Antea'sgoldchainandthelushmartenfurdrapedoveroneofhershoulders(anemblemoffertility)wereequallysymbolic,althoughMsNeilsoniscarefultonotethatcourtesansfavouredsuchaccessoriestoo.ThepublicationsixyearsagoofapreviouslyunrecordedParmigianinodrawing,“HeadofaYoungManLookingUp”,whichsoldatChristie'sinNewYorkformorethanfivetimesitstopestimate,ledtoclaimsthat“Antea”wasaman.Parmigianinowasknowntoalterthegenderoffiguresbetweenhispreparatorysketchesandfinishedpaintings,ButMsNeilsoncomestoadifferentconclusion.Shebelievestheresemblancebetweenthetwofiguresillustratesthepainter'sfantasyofwhatconstitutesidealbeauty.\nLittleknownabroad,ParmigianinoisreveredinItaly.InhislifetimehewashailedasthenewRaphael.GiorgioVasari,inhis16th-century“LivesoftheArtists”,recordsthatwhenGermansoldiersbrokeintoParmigianino'sstudioduringthesackofRomein1527,theyweresocaptivatedbyhisworktheylefthimalonetoproducemore.WhenFerdinandIV,KingofNaples,fledadvancingFrenchtroopsin1798hetookwithhimtoPalermosome20worksfromtheremarkableFarnesecollection,hisgrandmotherElisabettahavingbeenthelastoftheFarneseline.“Antea”wasamongthem.TwentyyearslaterthepictureswerebackinNaplesandtodaytheyformthecoreoftheCapodimonte'sholdings.In1945,acacheofpicturesthathadbeenremovedfromthemuseumforsafekeepingbeforebeingdiscoveredbytheNazis,wasfoundhiddeninSalzburg.ItincludedtheFarneseTitians—and“Antea”.TheFrickexhibition,whichbuildsonits2004showofParmigianinodrawingsthatattractedmuchcriticalandpublicinterest,mayleadtoareconsiderationofhisstatureinAmerica.AccordingtoMsNeilson,Parmigianino“createdawomanwithwhomtheviewercouldfallinlove”.SheissuchadrawattheCapodimontethatthemuseumoftenrunsoutofpostcardreproductionsofthepicture.Peoplehavebeenfallinginlovewith“Antea”forcenturies.Some22yearsafter“Antea”waslastthere,itisagainNewYork'sturn.“Parmigianino's'Antea':ABeautifulArtifice”isattheFrickCollectionfromJanuary29thuntilApril27thCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nBobbyFischerJan24th2008FromTheEconomistprinteditionCameraPressBobbyFischer,anunsettlingchess-player,diedonJanuary17th,aged64PEOPLEwerealwayscomingtogetBobbyFischer.Andhewasreadyforthem.Inalockedsuitcasehekeptbottlesandbottlesofvitaminpillsandherbalpotionsandalargeorange-juicer,incasetheytriedtoputtoxinsinhisfood.Hismostpreciousmemorabilia—matchnotebooks,photoalbums,lettersfromPresidentNixon—werekeptinafilingcabinetinasafebehindtwocombinationlocksinaten-by-tenstorageroominPasadena,California.Intheend,asherailedtoradiotalk-showhostsinHungaryandthePhilippines,evenallthiscouldn'tkeephimsafefromRussians,orJews,or“CIAratswhoworkfortheJews”.Buthehadtried.Theytriedtodisrupthischessgames,too.AshewrestledfortheworldchampionshipagainstBorisSpasskyatReykjavikin1972theypokedwhirringTVcamerasoverhisshoulder.Theymadetheboardtooshiny,reflectingthelights,andfidgetedandcougheduntilheclearedoutthefirstsevenrowsoftheaudience.Bythethirdgameheinsistedonretreatingtoatinybackroom,wherehecouldthink.Hewasalwaysbetterindingy,womb-likespaces:thecabinetroomoftheMarshallChessClubinNewYorkCity,whereasaboyheskippedschooltospendhismorningsreadingthrougholdfile-cardsof19th-centurygames;aparticulartableintheNewYorkPublicLibrary,wherehesatforhoursimmersedinchesshistory,openingsandstrategy;orthewalk-upfamilyflatinBrooklynwhere,oncehismotherandsisterhadmovedout,hesetupcontinuouschessgamesbesideeachbed,ignoringtheoutsidesunshinetocompeteagainsthimself.Ifyoucouldseeinsidehisbrain,ashisenemiesnodoubthopedto,youwouldfinditprimedtoattackanddefendineverywaypossible,withastraight-movingrookorasidlingbishop,orwithbothinhisfavouriteRuyLopezopening,orwiththequeenswallowinganearlypawninthe“poisoned”versionoftheSicilian,orathousandothers.AtReykjavik,whenMrSpasskywasadvisedbetweengamesby35Russiangrandmasters,MrFischerhadanotebookandhisownlong,lugubrious,cleverhead.Andhewon.Thatmadehimacold-warhero.Thequirkyindividualhadoutplayedthestatemachine,andAmericahadthrashedtheSovietUnionatitsownfavouritegame.ButMrFischer,forallhiselegantsuitsandchildhoodgenius,hisgrandmastershipat15andhis20-gamewinningstreakatchampionshiplevelin1968-71,wasalwaysanunsettlingposter-boy.Hisobjective,hetoldeveryone,wasnotjusttowin.Itwastocrushtheotherman'sminduntilhesquirmed.And,inpropercapitaliststyle,togetrich.Athisinsistence,thechampionshipmoneywasraisedfrom$1,400to$250,000;fromtherematchwithMrSpasskyin1992,whichhealsowon,hetookaway$3.5m.Sincefewvenues,evenQatarorCaesar'sPalace,offeredhimenoughtomakepublicplayingworthhiswhile,hespenttheyearsafter1975(whenheforfeitedhisworldtitlebyrefusingtodefendit)largelywanderingtheworldlikeatramp,castigatinghisenemies.Onlycold,eccentricIcelandwelcomedhim.Ahouselikearook\nWhatexactlywaswrongwithBobbyFischerwasasubjectofmuchdebate.Thecombinationofhighintelligenceandsocialdysfunctionsuggestedautism;buthehadbeenanormalboyinmanyrespects,enjoyingSupermancomicsandgoingtohockeygames.Hehadgotmixedupinthe1960swiththeWorldwideChurchofGod,acrazedmillenarianoutfit,andperhapshadlearnedfromthemtohateandreviletheJews;thoughhewasJewishhimself,withaJewishmotherwhohadtriedpsychologistsandthecolumnsofthelocalpapertocurehimoftoomuchchess,butwhostillcouldn'tstopthepocketsetcomingoutatthedinnertable.Possibly—somesaid—hehadbeenunhingedbytheAmericangovernment'ssternpursuitofhimafterthe1992rematch,whichwasplayedillegallyintheformerYugoslavia.Hecursed“stinking”Americatohisdeath,andwelcomedthe2001terroristattacksas“wonderfulnews”—atwhichmuchofthegoodhehaddoneforchessinhiscountry,frominspiringclubstoinstructingplayerstosimplymakingthegame,forthefirsttime,cool,drainedawaylikewaterintosand.Perhaps,intheend,thetroublewasthis:thatchess,asheoncesaid,waslife,andtherewasnothingmore.MrFischerwasnotgoodatanythingelse,hadnotperseveredinschool,hadneverdoneanotherjob,hadnevermarried,buthadpinnedeveryurgentminuteofhisexistenceto32piecesand64blackandwhitesquares.HedreamedofahouseinBeverlyHillsthatwouldbebuiltintheshapeofarook.Withinthislandscape,tobesure,hewasoneoftheworld'smostcreativeplayers;noonewasmorescathingaboutthedullnessofchessgamesthatweresimplyfeatsofmemorisingtactics.Mostworld-championshipgames,heclaimed,werepre-arranged,proofthatthe“oldchess”wasdead,androttentothecore.Heinventedanewversion,FischerRandom,inwhichthebackpieceswerelinedupanyoldhow,throwingallthatcarefulbook-learningtothewinds.Yetthegridremainedandtherulesremained:attack,defend,capture,sacrifice.Winatallcosts.Fromthisgrid,andfromthiswar,MrFischercouldneverescape.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nOverviewJan24th2008FromTheEconomistprinteditionAfterseveralturbulentdaysinglobalstockmarkets,theDowJonesIndustrialAveragereboundedonJanuary23rd,closingup2.5%afterhavingatonepointbeen2.7%downduringtheday.TherecoverycameafterameetingbetweentheNewYorkStateinsuranceregulatorandseveralbanks,todiscusssupportfortroubledbondinsurers.TheFederalReservesurprisedfinancialmarketsbyslashingitsbenchmarkinterestratebythree-quartersofapercentagepoint,to3.5%,atanemergencymeetingonJanuary22nd.AfurtherreductionisexpectedwhentheFed'srate-settersconveneagainforascheduledtwo-daymeetingonJanuary29thand30th.Tomaintainitspegwiththedollar,theHongKongMonetaryAuthorityfollowedtheFed'smovebycuttingitskeyrateby75basispoints,to5%.TheBankofCanadalowereditsbenchmarkratefrom4.25%to4%.Britain'sGDProseby0.6%inthefourthquarter,accordingtoapreliminaryestimate.OnlyonememberoftheBankofEngland'snine-strongmonetary-policycommitteevotedforaratecut,accordingtotheminutesofitsmeetingearlierthismonth.ConsumerpricesinAustraliaroseby0.9%inthefourthquarter,leavingthem3.0%higherthanayearearlier.Onthecentralbank'spreferredmeasure,whichfiltersoutthebiggestpricegainsandfalls,pricesroseby3.8%fromayearearlier—wellabovethetargetbandof2-3%.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nOutput,pricesandjobsJan24th2008FromTheEconomistprintedition\nCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nTheEconomistcommodity-priceindexJan24th2008FromTheEconomistprinteditionCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nEconomicfreedomJan24th2008FromTheEconomistprinteditionTheglobalIndexofEconomicFreedom,puttogetherbytheHeritageFoundationandtheWallStreetJournal,hasmadeonlymodestgainssincethemid-1990s.TheAmericasandEuropescorehighestinthe2008rankings,somewayabovetheworld'sotherregions.Ofthe162countriescovered,Americaranksfifth—behindHongKong,Singapore,IrelandandAustralia—andgetshighmarksforbusinessfreedom,flexiblelabourmarketsandpropertyrights.Japanranksinthetop20,thoughitspositionowessomethingtoadubiouslyhighscoreforitslowinflation.Chinaroseinthisyear'srankings,closingthegapwithIndia.Russia'sscorefellsharplyfromlastyear.OnlyNorthKoreaisrankedlowerthanCuba.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nTrade,exchangerates,budgetbalancesandinterestratesJan24th2008FromTheEconomistprintedition\nCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nMarketsJan24th2008FromTheEconomistprintedition\n\nCopyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.\nGoldJan24th2008FromTheEconomistprinteditionWorldgoldproductionfellby1%in2007,accordingtothelatestGoldSurveyfromGFMS.Goldpriceshaverisentonewhighsthisyear,butfreshsupplyhasbeenheldbackbyaglobalshortageofminingprofessionalsandequipment.China,wheregoldoutputroseby12%lastyear,supplantedSouthAfricaastheworld'snumber-oneproducer—apositionithadheldformorethanacentury.SouthAfrica'sproductionfellby8%,partlyinresponsetotoughersafetycontrols.AustralialeapfroggedAmerica,whereoutputfellby5%,toclaimthirdplaceintherankings.Peru'soutputfellbelowRussia's,aftertumblingby17%lastyear.SupplyfromIndonesia,Ghana,BrazilandMexicoincreasedrapidly.Copyright©2008TheEconomistNewspaperandTheEconomistGroup.Allrightsreserved.