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New world disorder: a special report 


The The trouble with green finance 


Britain's pitiful pandemic 


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Contents 


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The Economist June 20th 2020 








On the cover 


The pandemic has shown just 
how essential Jeff Bezos’s firm 
has become—and that it has 
vulnerabilities: leader, page 7 
and briefing, page 15 


¢ New world disorder 

If America pulls back from global 
institutions, other countries 
must step forward: leader, 
page 8. Seventy-five years ago 
world leaders designed the 
peace even as they fought the 
war. Today's leaders should 
match them, see our special 
report after page 40. Covid-19 
raises the risks of violent 
conflict, page 49 


¢ The trouble with green 
finance Climate investing is 
booming, but its shortcomings 
are glaring: leader, page 9 and 
briefing, page 58 


¢ Britain's pitiful pandemic 

The country has the wrong 
government for the crisis: leader, 
page 11. Why it has the highest 
death-rate in the rich world, 
page 45.A life-saving drug, 

page 47. Boris Johnson's poor 
management of the pandemic: 
Bagehot, page 48 


~ We are working hard to 
ensure that there is no dis- 
ruption to print copies of 
The Economist as a result of 
the coronavirus. But if you 
have digital access as part of 
your subscription, then acti- 
vating it will ensure that you 
can always read the digital 
version of the newspaper as 
well as all of our daily jour- 
nalism. To do so, visit 
economist.com/activate 


The world this week 


5 Asummary of political 
and business news 


Leaders 
7 Jeff Bezos 

The genius of Amazon 
8 Geopolitics 

The new world disorder 
9 India and China 

Elephant v dragon 


9 Climate change 
The trouble with green 
finance 


10 Global trade 
Invisible hands 


1 


= 


The pandemic 
Not Britain’s finest hour 


Letters 


12 On prosecutors, the 
media, mercenaries, 
Greek, carbon pricing, 
the Bible, Andrew 
Johnson 


Briefing 
15 Amazon’s future 
And on the second day... 


Special report: 
The new world disorder 


Missing 1n action 
After page 40 


Chaguan China sees a 
world that is distracted by 
covid-19 and too 
economically weak to 
hold it back, page 36 





19 
20 
21 
22 
22 
23 
24 


25 
26 
28 


29 
30 
31 
31 
32 


33 


34 
36 


37 
38 
39 
39 
40 


41 
42 
43 
43 
44 


United States 

State finances 

LGBT rights 

Midwives in demand 
John Bolton’s bombshells 
New York’s mayor 

The Maine Senate race 


Lexington The joys of 
vegetable-growing 


The Americas 
Latin America’s lockdowns 
Uruguay’s covid-19 success 


Bello An American bid 
to lead the IDB 


Asia 

Sino-Indian clashes 
South Asian etiquette 
Singapore’s migrants 
North Korea 


Banyan Racism in 
Australia 


China 


Who's boss in the South 
China Sea? 


Beijing’s covid-19 outbreak 


Chaguan The calculations 
behind bullying 


Middle East & Africa 
Covid-19 testing in Africa 
Malawi's election re-run 
Football and war 

Taxing African cities 

The crisis in Syria 


Europe 

Poland’s opposition stirs 
Belarus’s slipper revolt 
Why furlough works 
Rustic France 


Charlemagne The dining 
club that ate the EU 











>> Contents continues overleaf 


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4 Beenie The Economist June 20th 2020 


Finance & economics 
61 What will the Fed do next? 
62 Dollar-swap lines 
63 Stimulus in the euro zone 
63 Poverty in China 


64 The economics of 
reparations 


65 Buttonwood Retail 
investors 


Britain 
45 Abad pandemic 
47 The first drug that works 


48 Bagehot Boris Johnson 
loses his grip 





International 


49 Covid-19 and war 66 Stranded mariners 


67 Free exchange 
Reallocation and covid-19 


Science & technology 
68 A floating Arctic lab 





Business 
52 Luxury in the pandemic 
53 Race in Silicon Valley 
54 Bartleby Furlough v 





recession 
55 Samsung’s scandals és Books & arts 
55 China’s business battles — | 71 Spain’s tragic history 
56 A peek inside JAB 72 Goths v Romans 
57 Schumpeter Zoom and 73 Anarttist of the news 
gloom 74 Home Entertainment 
— “The Prisoner” 
Briefing | 74 Climbing “The Magic 
58 Green investing | | | ll | ya | Mountain” 


Economic & financial indicators 
76 Statistics on 42 economies 





Graphic detail 
77 Measuring conflict in the Sahel 


Obituary 
78 Lily Lian, a lost voice of Paris 


Hite 


Economist 





Volume 435 Number 9199 






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The world this week Politics 





Brazil reported a record 35,000 
new cases of covid-19 ina day. 
Even that grim figure is widely 
regarded as an undercount. 
India is now recording tens of 
thousands of new infections 
each week. In America, Florida, 
Texas and Arizona Set daily 
records for new cases. Al- 
though many places are easing 
lockdowns, Anthony Fauci, the 
leading adviser to the White 
House on infectious diseases, 
warned that the pandemic is 
far from over: “The numbers 
speak for themselves.” 


Beying went into “wartime 
mode’ to battle an outbreak of 
covid-19, the first in the Chi- 
nese capital after eight weeks 
with no cases reported of local 
transmission. Many of the 
cases are linked to a wholesale 
food market. 


A court in China sentenced the 
country’s former insurance 
regulator, Xiang Junbo, ton 
years in prison for accepting 
18m yuan ($2.5m) in bribes. Mr 
Xiang had also served as depu- 
ty governor of the central bank. 


At least 20 Indian troops were 
killed in a fight with Chinese 
soldiers in the Galwan valley, 
the first combat deaths on the 
disputed Sino-Indian border in 
A5 years. China did not say how 
many of its soldiers died. The 
brawl involved nail-studded 
clubs and stones rather than 
guns. Tensions have increased 
since April, when the Chinese 
army encroached on Indian- 
claimed territory. 


North Korea blew up the 
building used for meetings 
between its officials and those 
from South Korea. It said the 
explosion was retaliation for 
unflattering leaflets about its 
Supreme leader, sent over the 





























border via balloons by defec- 
tors, whom North Korea called 
“rubbish-like mongrel dogs”. 


Acourt in the Philippines 
found Maria Ressa guilty of 
libel for alleging links between 
a businessman and ajudge. Ms 
Ressa is the boss of Rappler, a 
news website that is critical of 
the country’s strongman presi- 
dent, Rodrigo Duterte. Her 
lawyer Said the message to 
other journalists was “Keep 
quiet, or you ll be next.” 


Steven Mnuchin, America’s 
treasury secretary, said his 
government will nominate 
Mauricio Claver-Carone, a Staff 
member of Donald Trump's 
National Security Council, to 
lead the Inter-American 
Development Bank. All the 
bank’s four presidents since its 
founding in 1959 have been 
from Latin America. The us has 
30% of the bank’s shares, the 
largest stake of any country. 


Venezuela’s Supreme Court 
removed the leaders of two 
Opposition parties, Justice First 
and Democratic Action. It 
replaced them with men whom 
the parties had previously 
expelled for being stooges of 
Nicolas Maduro, the country’s 
dictator. 


America’s Supreme Court ruled 
that the 1964 Civil Rights Act 
makes it illegal to fire workers 
for being gay or transgender. 
More than half the states al- 
lowed such discrimination. 
The 6-3 majority decision was 
written by Neil Gorsuch, a 
Trump appointee. 


The White House tried to stop 
publication of a book by John 
Bolton, a former national 
security adviser, claiming that 
it contained classified infor- 
mation. The book says that 
Donald Trump tried to per- 
Suade Xi Jinping, China's presi- 
dent, to buy American farm 
goods to help his re-election 
campaign. It also alleges that 
ina meeting with Mr Xi, Mr 
Trump said he approved of 
China's policy of putting U1- 
ghur Muslims in internment 
camps. OnJune17th Mr Trump 
signed a bill that imposes 


sanctions on Chinese officials 
who were responsible for the 
Uighurs’ internment. 


A white policeman in Atlanta 
who shot dead a black man 
when he took the officer's Taser 
weapon was charged with 
murder. Republicans in the 
Senate unveiled their own set 
of police reforms. These are 
less radical than those put 
forward by Democrats but 
Support the creation of a data- 
base to track police officers 
with a record of misconduct. 


Boris Johnson, Britain’s prime 
minister, announced that 
Britain’s Department for 
International Development 
would be folded back into the 
Foreign Office. British aid will 
now focus less on ending 
poverty and more on 
advancing British foreign- 
policy goals. 


Yousef al-Otaiba, a diplomat 
from the United Arab Emir- 
ates, wrote in an Israeli news- 
paper that any unilateral an- 
nexation of West Bank territory 
would harm Israel’s relations 
with Arab countries. Itis 
thought to be the first-ever 
Opinion piece written by an 
official from the Gulf foran 
Israeli newspaper. 


America imposed new sanc- 
tions on Syria that target any 
person, company or institu- 
tion—Syrian or foreign—that 
does business with or provides 
Support to the regime of Presi- 
dent Bashar al-Assad. 


There were more demonstra- 
tions in Lebanon. The govern- 
ment began injecting more 
American dollars into the 
market in an effort to support 
the local currency. Early talks 
with the IMF over a bail-out 
package have been shaken by 
concerns that the government 
is not serious about reform. 


A judge overseeing a corrup- 
tion trial in the Democratic 
Republic of Congo was mur- 
dered. Police initially said that 
the judge had had a heart at- 
tack, but an autopsy showed he 
had died from brain injuries 
after being stabbed in the head. 


The Economist June 20th 2020 5 


Coronavirus briefs 
To 6am GMT June 18th 2020 


Weekly confirmed deaths by area, ‘000 
30 
Europe 


Latin 
America 





Mar Apr May Jun 


Confirmed deaths per 100,000 people 


log scale a 
Sweden Britain 100 
Belgium— | France 
Brazil US 
10 
Mexico 
Russia Germany 





0 10 20 30 40 50 60 70 8/7 
Days since one death per 100,000 people 


Sources: Johns Hopkins University CSSE; 
UN; The Economist 


A randomised trial conducted 
by scientists at Oxford found 
that dexamethasone, a cheap 
steroid drug found in many 
countries, reduced the death 
rates for patients on ventila- 
tors by 35% and by 20% for 
those needing oxygen. 


The president of Honduras, 
Juan Orlando Hernandez, said 
he and his wife have covid-19. 


The remaining lockdown 
restrictions were lifted in 
France, enabling bars and 
restaurants to reopen fully. In 
England all shops were 
allowed to open their doors to 
customers again. 


Next year’s Oscars ceremony 
was postponed by two months 
until April 25th. It is not yet 
clear whether the event will be 
held ina theatre or virtually. 


The English Premier League 
resumed its season, three 
months after it was suspended. 
The football matches are being 
played behind closed doors. 


+ For our latest coverage of the 
virus and its consequences 
please visit economist.com/ 
coronavirus or download the 
Economist app. 


The world this week Business 


The Federal Reserve clarified 
its new bond-buying strategy, 
announcing that it would 
acquire individual corporate 
bonds on the secondary mar- 
ket. This comes on top of its 
purchases in exchange-traded 
funds, which include some 
junk-rated funds that track 
debt. But the central bank's 
latest move comes almost 
three months after it first 
announced emergency mea- 
sures to shore up markets. 
Questions have been raised 
about the length of time it has 
taken to roll out some of its 
programmes. 


Stockmarkets rallied in re- 
sponse to the news from the 
Fed, making up for some of the 
heavy losses they racked up in 
the week ending June 12th, 
which was the worst for the 
S&P 500 and Dow Jones Indus- 
trial Average since mid-March. 


The Trump administration 
Said it would let American tech 
firms work with Huawei on 
creating international stan- 
dards for 5G. The decision 
represents a long-expected 
easing of the sanctions placed 
on the Chinese provider of 
telecoms networks and equip- 
ment over national-security 
concerns. America did not 
have much choice. Huawei’s 
size and expertise makes it one 
of the companies integral to 
setting the rules on interna- 
tional networks. 


America’s Justice Department 
put forward proposals that roll 
back the immunity of social- 
media firms for content post- 
ed on their platforms. Donald 
Trump signed an executive 
order recently rescinding the 
protections after he gotintoa 
spat with Twitter, butitis 
unlikely to be upheld once it is 
challenged in court. 


Robert Lighthizer, the us trade 
representative, confirmed that 
America had pulled out of talks 
with the Eu that had sought to 
find common ground on 
taxing tech companies. Amer- 
ica argues that such levies will 
disproportionately hit its 
global giants, suchas Apple 
and Google, and has threatened 


to retaliate with sanctions if 
European countries impose 
their own digital tax. 


Facebook launched a payment 
service on its WhatsApp plat- 
form in Brazil. Brazilians can 
link their credit or debit cards 
to WhatsApp Pay to send 
money to each other or buy 
goods from small firms. Face- 
book had hoped India would be 
the first country to use the 
facility nationwide, but be- 
came bogged down in regu- 
latory objections there. 


Shop till you drop 
= 
Retail sales 
US, % change on previous month 





AVC OS) 1 Wee ie Fis) eel! 20 


Source: Datastream from Refinitiv 


Retail sales in America surged 
last month by 17.7% over April, 
more than double the amount 
that had been expected. That 
followed a14.7% decline in 
April. Sales were still down by 
6.1% compared with May last 
year. Itis thought that the 
government’s stimulus mea- 
sures to households helped 


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fuel the shopping spree, and 
that consumers might not 
spend so much when the mon- 
ey runs out. 


In America’s biggest IPO So far 
this year, Royalty Pharma 
raised $2.2bn when it listed on 
the Nasdaq exchange. The 
company invests in the rights 
to royalties on future drug 
sales across the life sciences, 
combining scientific expertise 
with capital investment for the 
industry. Royalty’s share price 
leapt by more than half on the 
first day of trading. 


Acknowledging that demand 
for energy will remain weak in 
the aftermath of covid-19 and 
that governments “will acceler- 
ate the pace of transitiontoa 
lower carbon economy’, BP 
Said it would write down the 
value of its oil and gas assets in 
the second quarter by between 
$13bn and $17.5bn. To buttress 
its balance-sheet the energy 
giant reportedly raised $12bn 
through a sale of hybrid bonds. 


In its first forecast for 2021, the 
International Energy Agency 
said that demand for oil would 
increase by 5.7m barrels a day 
next year to 97.4m. That is still 
below the average for 2019, 
mostly because the aviation 
industry will still struggle in 


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The Economist June 20th 2020 


| exit from lockdown” saw its 


demand for oil in April 
rebound back almost to the 
level it was at a year ago. 


In a rare admission of cor- 
porate wrongdoing on homi- 
cide-related charges, PG&E 
pleaded guilty to 84 counts of 
involuntary manslaughter in 
relation to the Camp Fire disas- 
ter in California two years ago. 
The electric utility’s faulty 
equipment sparked the infer- 
no. Its chief executive (who 
was not in charge at the time of 
the fire) pled guilty to each one 
of the deaths of the 84 victims 
of the fire as their names were 
read out alphabetically. The 
company is soon to exit bank- 
ruptcy protection. 


Everybody Hertz 

Hertz postponed a sale of new 
Shares after the Securities and 
Exchange Commission raised 
objections. A judge had earlier 
allowed the sale to proceed, an 
unprecedented ruling fora 
company that has filed for 
bankruptcy protection. The 
car-hire company had warned 
potential buyers of the stock 
that they stand to lose their 
shirts unless there is a signif- 
icant and “currently unantici- 
pated improvement” in its 
business, which has been 
hammered by the pandemic. 





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The 


Economist 





The genius of Amazon 


The pandemic has shown just how essential his firm has become—and that it has vulnerabilities 


N THE SUMMER Of 1995 Jeff Bezos was a Skinny obsessive work- 
Line in a basement alongside his wife, packing paperbacks into 
boxes. Today, 25 years on, he is perhaps the 21st century’s most 
important tycoon: a muscle-ripped divorcé who finances space 
missions and newspapers for fun, and who receives adulation 
from Warren Buffett and abuse from Donald Trump. Amazon, his 
firm, is no longer just a bookseller but a digital conglomerate 
worth $1.3trn that consumers love, politicians love to hate, and 
investors and rivals have learned never to bet against. Now the 
pandemic has fuelled a digital surge that shows how important 
Amazon is to ordinary life in America and Europe, because of its 
crucial role in e-commerce, logistics and cloud computing (see 
Briefing). In response to the crisis, Mr Bezos has put aside his 
side-hustles and returned to day-to-day management. Superfi- 
cially it could not be a better time, but the world’s fourth-most- 
valuable firm faces problems: a fraying social contract, financial 
bloating and re-energised competition. 

The digital surge began with online “pantry-loading’” as con- 
sumers bulk-ordered toilet rolls and pasta. Amazon’s first-quar- 
ter sales rose by 26% year on year. When stimulus cheques ar- 
rived in mid-April Americans let rip on a broader range of goods. 
Two rivals, eBay and Costco, say online activity accelerated in 
May. There has been a scramble to meet demand, with Mr Bezos 
doing daily inventory checks once again. Ama- 
zon has hired 175,000 staff, equipped its people 
with 34m gloves, and leased 12 new cargo air- 
craft, bringing its fleet to 82. Undergirding the e- 
commerce surge is an infrastructure of cloud 
computing and payments systems. Amazon 
owns achunk of that, too, through Aws, its cloud 
arm, which saw first-quarter sales rise by 33%. 

One question is whether the digital surge 
will subside. Shops are reopening, even if customers have to pay 
at tills shielded by Perspex. Yet the signs are that some of the 
boom will last, because it has involved not just the same people 
doing more of the same. A new cohort has taken to shopping on- 
line. In America “silver” customers in their 60s have set up digi- 
tal-payment accounts. Many physical retailers have suffered fa- 
tal damage. Dozens have defaulted or are on the brink, including 
J Crew and Neiman Marcus. In the past year the shares of ware- 
housing firms, which thrive on e-commerce, have outperformed 
those of shopping-mall landlords by 48 percentage points. 

All this might appear to fit the script Mr Bezos has written 
over the years in his letters to shareholders, which are now pored 
over by investors as meticulously as those of Mr Buffett. He ar- 
gues that Amazon is in a perpetual virtuous circle in which it 
spends money to win market share and expands into adjacent 
industries. From books it leapt to e-commerce, then opened its 
cloud and logistics arms to third-party retailers, making them 
vast new businesses in their own right. Customers are kept loyal 
by perks such as Prime, a subscription service, and Alexa, a 
voice-assistant. By this account, the new digital surge confirms 
Amazon's inexorable rise. That is the view on Wall Street, where 
Amazon's shares reached an all-time high on June17th. 

Yet from his ranch in west Texas, Mr Bezos has to wrestle with 





those tricky problems. Start with the fraying social contract. 
Some common criticisms of Amazon are simply misguided. Un- 
like, say, Google in search, itis nota monopoly. Last year Amazon 
had a 40% share of American e-commerce and 6% of all retail 
sales. There is little evidence that it kills jobs. Studies of the “Am- 
azon effect” suggest that new warehouse and delivery jobs offset 
the decline in shop assistants, and the firm’s minimum hourly 
wage of $15 in America is above the median for the retail trade. 

But Amazon's strategy does imply huge creative disruption in 
the jobs market even as the economy reels. In addition, viral out- 
breaks at its warehouses have reignited fears about working con- 
ditions: 13 American state attorneys-general have voiced con- 
cern. And Amazon's role as a digital jack-of-all-trades creates 
conflicts of interest. Does its platform, for example, treat third- 
party sellers on equal terms with its own products? Congress and 
the EU are investigating this. And how comfortable should other 
firms be about giving their sensitive data to AWS given that it is 
part of a larger conglomerate which competes with them? 

Amazon's second problem is bloating. As Mr Bezos has ex- 
panded into industry after industry, his firm has gone from be- 
ing asset-light to having a balance-sheet heavier than a Soviet 
tractor factory. Today it has $104bn of plant, including leased as- 
sets, not far off the $u9bn of its old-economy rival, Walmart. Asa 
result, returns excluding AWS are puny and the 
pandemic is squeezing margins in e-commerce 
further. Mr Bezos says the firm can become 
more than the sum of its parts by harvesting 
data and selling ads and subscriptions. So far in- 
vestors have taken this on trust. But the weak e- 
commerce margins make it harder for Amazon 
to spin off Aws. This would get regulators off its 
back and liberate Aws, but would deprive Ama- 
zon of the money-machine that funds everything else. 

Mr Bezos’s last worry is competition. He has long said that he 
watches customers, not competitors, but he must have noticed 
how his rivals have been energised by the pandemic. Digital sales 
at Walmart, Target and Costco probably doubled or more in April, 
year on year. Independent digital firms are thriving. If you create 
a stockmarket clone of Amazon lookalikes, including Shopify, 
Netflix and UPS, it has outperformed Amazon this year. In much 
of the world regional competitors rule, not Amazon; among 
them are MercadoLibre in Latin America, Jio in Indiaand Shopee 
in South-East Asia. China is dominated by Alibaba, JD.com and 
brash new contenders like Pinduoduo. 


Imitation is the sincerest form of capitalism 

The world’s most admired business is thus left having to solve 
Several puzzles. If Amazon raises wages to placate politicians ina 
populist era, it will lose its low-cost edge. If it spins off Aws to 
please regulators, the rump will be financially fragile. And if it 
raises prices to satisfy shareholders its new competitors will win 
market share. Twenty-five years on, Mr Bezos’s vision of a world 
that shops, watches and reads online is coming true faster than 
ever. But the job of running Amazon has become no easier, even 
if it no longer involves packing boxes. @ 


Leaders 7 


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8 Leaders 


The Economist June 20th 2020 


Geopolitics 


The new world disorder 


If America pulls back from global institutions, other countries must step forward 


EVENTY-FIVE years ago in San Francisco 50 countries signed 

the charter that created the United Nations—they left a blank 
space for Poland, which became the 51st founding member a few 
months later. In some ways the UN has exceeded expectations. 
Unlike the League of Nations, set up after the first world war, it 
has survived. Thanks largely to decolonisation, its membership 
has grown to 193. There has been no third world war. 

And yet the UN is struggling, as are many of the structures, 
like the World Trade Organisation (WTO) and the Nuclear Non- 
Proliferation Treaty (NPT), designed to help create order out of 
chaos. This system, with the UN at its apex, is beset by internal 
problems, by the global struggle to cope with the rise of China, 
and most of all by the neglect—antipathy even—of the country 
that was its chief architect and sponsor, the United States. 

The threat to the global order weighs on everyone, including 
America. But if the United States pulls back, then everyone must 
step forward, and none more so than the middling powers like 
Japan and Germany, and the rising ones like India and Indonesia, 
which have all become accustomed to America doing the heavy 
lifting. If they hesitate, they will risk a great unravelling—much 
like the nightmare in the 1920s and 1930s that first impelled the 
allies to create the UN and its siblings. 

The UN is bureaucratic and infuriating. Its agencies fall prey 
to showboating and hypocrisy, as when despots 
on its Human Rights Council censure Israel yet 
again. The Security Council gives vetoes to Brit- 
ain and France, much diminished powers since 
1945, but no permanent membership to Japan, 
India, Brazil, Germany or any African country. 
Alas, it looks virtually unreformable. | 

Nonetheless, the global order is worth sav- 
ing. AS Dag Hammarskjold, a celebrated secre- 
tary-general, said, the UN “was not created to take mankind to 
heaven, but to save humanity from hell.” Our special report this 
week explains how the UN does that essential job, as do many 
other multilateral institutions. Its peacekeepers protect 125m 
people ona budget only a bit bigger than New York City Police De- 
partment’s. It says it is helping provide life-saving assistance to 
103m. For all the Security Council's flaws, it would be missed. 

That is because, left to themselves, countries drift into antag- 
onism. Witness the fatal clash of Indian and Chinese forces this 
week over a border dispute both sides are too proud to defuse 
(see Leader). Multilateral endeavours like the UN, NATO and the 
NPT Cannot ensure peace, but they do make war less likely and 
more limited. France and its allies are helping contain the con- 
flict spreading across the Sahel. 

Without a multilateral effort, old problems are likely to deep- 
en—even Syria, after nine bloody years, will one day be ready for 
the UN envoy’s plans for peace. Meanwhile new problems are 
more likely to go unsolved. The pandemic is an example. The vi- 
rus not only calls for global solutions, like treatments and vac- 
cines, but it also aggravates local insecurity (see International 
section). Itis the same with climate change and organised crime. 

Protecting the system from the forces of disorder is easier 
Said than done. One threat is antagonism between America and 





| ad 
ae 
Vint 


China, which could create gridlock in global bodies, exacerbated 
by competing parallel financial and security arrangements. An- 
other is that America may continue its careless treatment of 
multilateral institutions—especially if President Donald Trump 
behaves as badly in a second term as a devastating new book by 
John Bolton, his former national security adviser, says he has in 
his first (See United States section). Mr Trump has undermined 
the World Health Organisation and the wTo, and this month said 
that he would pull outa third of the American troops stationed in 
Germany, enfeebling NATO and limiting America’s scope to pro- 
ject power from Europe into Africa. 

Happily, the world has not yet reached the point of no return. 
For decades the middling powers have depended on America for 
the system’s routine maintenance. Today they need to take on 
more of the work themselves. France and Germany have created 
an alliance for multilateralism, an initiative that is open to other 
countries. Another idea is for nine democracies, including Ja- 
pan, Germany, Australia and Canada, which together generate a 
third of world GDP, to forma “committee to save the world order”. 

Although America is dominant, other countries can still get 
things done—with or without help from the White House. Some- 
times the aim is to bind in America. After a chemical-weapons 
attack on Sergei Skripal, a Russian ex-spy living in Britain, West- 
ern countries’ imposition of sanctions on the 
Kremlin swept up America, too. The Quad is an 
emerging coalition between India, Australia, Ja- 
pan and America, which are all alarmed at Chi- 
nese expansion, including in the South China 
Sea (See China section). 

Sometimes, however, the world must work 

without America even if that is second-best. 

After Mr Trump walked away from the Trans-Pa- 

cific Partnership, a huge trade deal, the other members went 

ahead on their own. Stymied at the WTo, countries are instead 

forming regional and bilateral trade arrangements, such as one 

between Japan and the European Union and another between 28 
countries in Africa. 

Defending the international order is necessary, too. China’s 
Stature is growing along with its contributions—it now pays 12% 
of the UN budget compared with 1% in 2000. Its diplomats head 
four of the UN’S 15 specialised agencies, and America just one. If 
other countries do not act, the system will come to reflect Chi- 
na’s expansive views of national sovereignty and resistance to 
intervention, even in the face of gross human-rights violations. 

Some think the job of middling powers is triage, to keep the 
system going until America returns to the party under a different 
president. It is more than that. Although polls suggest that most 
Americans would like to play a bigger global role, there is no go- 
ing back to the “unipolar moment” after the Soviet collapse, 
when America ran the show singled-handed. Not only did that 
provoke a backlash abroad, exploited by Russia and China, but it 
also stirred up resentment at home. 

At the time, President Barack Obama responded by asking 
like-minded countries to help America make the world safe. 
They shrugged. They must not make the same mistake again. @ 








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The Economist June 20th 2020 


Leaders 


India and China 


Elephant v dragon 


A border clash between the world’s two most populous countries is insanely risky. Time to swap maps 


N THE ANCIENT Chinese game of Go, clever players ignore little 

battles in favour of strategic plays. Leaving local disputes unre- 
solved means that later, when the game tightens and the enemy 
is off-guard, you can snatch prizes at lower cost. In the 69 years 
since China truly became India’s neighbour by grabbing Tibet, 
the world’s two most populous countries have played a similar 
game. Even as their leaders summited and trade thrived, the 
Asian giants left a mess of territorial disputes to fester. 

Mostly these claims, over some 130,000 square kilometres on 
either side of their 3,488km-long border, have not mattered 
much. Despite a Chinese “lesson-teaching” invasion in 1962, rare 
armed skirmishes and less rare fisticuffs between patrols, the 
border zone has remained relatively calm. Much 





of it is too rugged and empty to fight over. So 
long as neither side shifts the status quo, what 
difference does it make if there are no proper 
markers on long stretches of border, but instead 
just a fuzzy “Line of Actual Control”? 

A brutal clash on June 15th provided a loud 
and ugly answer (See ASia section). Details re- 
main sketchy. At least 20 Indian soldiers died, 
many after tumbling into an icy river. India says the Chinese also 
suffered casualties. China says little (see Chaguan). The death 
toll is the worst in any clash between the two since 1967, and the 
first loss of life since 1975. 

Even worse, the skirmish cannot be explained away as an iso- 
lated incident. This spring China deployed far heavier forces 
than usual. It has pushed them forward not at one point but at 
many, say Indian sources, in effect seizing as much as 60 square 
kilometres of land that India views as lying on its own side of the 
line. A particular concern is China’s westward extension along 
the Galwan river, threatening a Strategic road that runs parallel to 
the border and forms the main link to India’s northernmost out- 





posts. Not surprisingly, this is where the deadly clash erupted. 

Why would China change the status quo, angering a big nuc- 
lear-armed trading partner? Because, say Indian cynics, India is 
distracted just now by a swelling pandemic and shrinking econ- 
omy, and saddled with a government better at chest-thumping 
than at strengthening its army or building alliances. Nonsense, 
say India’s critics. It is India that has changed the status quo, quli- 
etly expanding infrastructure in contested regions even as, after 
Stripping its part of Kashmir of statehood last August, its leaders 
boasted of soon “regaining” other parts, including a chunk that 
Pakistan gave to China 1n 1963. 

China may also see an interest in teaching India that, should 
it continue to flirt with closer ties to America, it 
will pay a price. To their credit, officials on both 
sides have avoided whipping up popular anger, 
stressing instead the importance of implement- 
ing an earlier deal to pull forces back. Such gen- 
tlemen’s agreements have calmed tempers in 
previous clashes. 

Yet whatever the efficacy of generals meeting 
in windblown tents, it is a reckless way to fix 
problems between two rising nuclear powers that are home toa 
third of humanity. India has previously suggested that, as a sec- 
ond-best to a formal agreement over where the border lies, the 
two sides should at least present maps showing their view of 
where the line of control runs in practice. China, perhaps think- 
ing itself the more astute Go player, has always refused to do so. 
This allows it to claim that any Indian move is a violation of its 
own understanding. 

Itis time to stop playing games. China looks stronger just now 
but India, if pushed, will find ways to cause it pain. And the last 
thing the wider world needs is an escalating slugfest between a 
dragon and an elephant over a lofty patch of frozen earth. m 


Climate change and investing 


The trouble with green finance 


Climate finance is booming, but its shortcomings are glaring 


HE FINANCIAL industry reflects society, but it can change 
T society too. One question is the role it might play in decarbo- 
nising the economy. Judged by today’s fundraising bonanza and 
the solemn pronouncements by institutional investors, bankers 
and regulators, you might think that the industry is about to save 
the planet. Some 500 environmental, social and governance 
(ESG) funds were launched last year, and many asset managers 
say they will force companies to cut their emissions and finance 
new projects. Yet, as we report this week (See Briefing), green fi- 
nance suffers from woolly thinking, marketing guff and bad 
data. Finance does have a crucial role in fighting climate change 
but a far more rigorous approach is needed, and soon. 

One of the shortcomings of green finance might be called 


“materiality”. Some fee-hungry fund managers make hyperbolic 
claims about their influence, even as big-business bashers pin 
most of the blame for pollution on companies. The reality is 
more prosaic. Fund managers have some influence over a big 
Slice of the economy, but many emissions occur outside the 
firms they control. Estimates by The Economist suggest that pub- 
licly listed firms, excluding state-controlled ones, account for 
14-32% of the world’s total emissions, depending on the measure 
you use. Global fund managers cannot directly influence the 
bosses of state-controlled Chinese coal-fired power plants or 
Middle Eastern oil and gas producers. 

Some European bank regulators hope to cut emissions indi- 


rectly, by imposing climate-stress tests on lenders and insurers >> 


9 


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10 Leaders The Economist June 20th 2020 


> that penalise their exposures to dirty or vulnerable projects. But Their opaque methodologies bamboozle clients and bosses. In- 


the evidence so far suggests that this will not make much differ- 
ence (assuming there is no change in rules on carbon emis- 
sions). The effect on these firms’ solvency is small, because only 
a fraction of their assets are invested in fossil fuels or in projects 
whose value is sensitive to physical risks, such as flooding, after 
being discounted over 10-15 years. Meanwhile, despite all the 
fundraising, the sums being invested in renewable energy and 
infrastructure are only about half what would be needed to Keep 
temperatures within 2°C of pre-industrial levels. 

Another problem is measurement. Ideally, a fund manager 
with a portfolio, or a bank boss with a loan book, could gauge its 
total net carbon footprint, including the supply chains compa- 
nies use and the emissions their products release—and do so 
without double-counting. That way you could objectively track 
both its carbon and financial performance and compare one 
portfolio with another. Unfortunately, corporate disclosure is so 
bad that this is impossible, at least for now. Instead, fund manag- 
ers resort to using dubious ESG ratings, created by external advis- 
ers, that make subprime credit scores look like the gospel truth. 


dices and portfolios which claim to be climate-friendly often 
contain the securities of firms that are big polluters. 

The final problem is motivation. Suppose shareholders can 
influence a firm and measure its emissions properly. Even then 
they may not havea strong financial incentive either to force it to 
shut down its lucrative oilfields, say, or to increase its invest- 
ment in experimental energy and costly electrical grids. That is 
because the externalities of greenhouse-gas emissions are not 
accurately priced into the cost of energy. Dedicated green inves- 
tors might still call for climate-friendly decisions, but they 
might not carry enough weight to determine how firms behave. 

What to do? Governments need to force firms to improve their 
disclosure. Asset managers need to drop the gimmicks and set 
coherent and measurable objectives. Most important, wide- 
spread carbon taxes would unlock the power of finance, giving 
investors and banks a strong motive to shift capital away from 
dirty industries to clean ones and to develop instruments that al- 
low firms to hedge and trade the price of carbon. Climate finance 
is still in its infancy. There is alot of room forimprovement. & 


Global trade 


Invisible hands 


It is not covid-19 that has trapped merchant seamen on their ships. It is official indifference 


S YOU READ this, over 60,000 cargo ships are on the high 
A seas laden with iPhones from China, dresses from Bangla- 
desh, beef from Argentina, oil from the Gulf and much, much 
more. The industry likes to say that it is responsible for “90% of 
everything’. Indeed, its ships are the circulatory system of global 
commerce and their 1.2m merchant seamen its lifeblood. They 
enable nations to turn their comparative advantage into wealth. 
If they were to stop, much of humanity would soon begin to 
Starve or freeze. 

Throughout the covid-19 pandemic merchant seamen have 
kept working (see Finance section). But they have been stuck on 
board. In a normal week around 50,000 finish their contracts 
and are relieved. The virus has cut that number 
to almost nothing. Over 250,000 mariners are 
Stranded at sea, even though they are at least a 
month past the end of contracts that typically 
last three to nine months. Each day that total 
rises, and an essential job starts to look more 
like indentured labour. 

Most merchant seamen are from developing 
countries, in particular India, Indonesiaand the 
Philippines. They start and end their contracts in whatever porta 
shipping schedule stipulates. The ship-management firms that 
organise rosters and contracts for shipowners fly them out and 
back again. But most commercial flights have been grounded for 
months. Managers would have used charter planes, but many 
countries are refusing entry to non-citizens. Some are turning 
citizens away, too. Sailors are forbidden to disembark, and their 
reliefs are barred from entry. 

The situation is unjust to sailors both on board and onshore. 
The first lot do not know when they will see their families again; 
the second do not know when they will next be able to earna 
wage. It is also dangerous. Fatigue makes it hard to concentrate, 





and cargo ships are high-pressure, high-risk places. Forcing sail- 
ors to work endlessly is a recipe for accidents. 

In the pandemic’s early days, governments could perhaps 
have been forgiven for their neglect. There was much else to wor- 
ry about. But their confinement has dragged on and sailors now 
have every right to feel bitter. After being locked down for 
months, seeing nobody but the odd pilot or port official, they are 
some of the world’s least likely virus-spreaders. They Know that 
they are being ignored simply because they can be. Lorry-drivers, 
whose goods cannot cross borders without them, were quickly 
classed as essential workers. Sailors, unfortunately for them, 
can stay on board while their cargoes are loaded and unloaded. 

On June 16th an industry-wide agreement al- 
lowing emergency extensions to labour con- 
tracts expired. Unless crew-changes restart, in- 
Surance contracts could lapse—a headache for 
the entire industry. 

But it is governments, not shipowners and 
managers, who must solve the problem. Last 
month the International Maritime Organisa- 
tion, an arm of the UN, published a protocol for 
safe crew-changes in the pandemic. Almost no country has yet 
got round toimplementing it. The most important step is to clas- 
sify merchant seamen as essential workers, thus enabling them 
to cross borders and travel to and from ports during lockdowns. 
Ports and airports need holding facilities and accommodation 
for testing and quarantine for sailors. In ordinary times, all this 
might seem onerous. But the covid-19 world is one where hair- 
dressers sterilise their scissors between cuts and offices allocate 
desks on a rota to maintain social distancing. Shipping needs to 
adapt to these new realities, too. 

Global trade’s invisible hands must not be forgotten. When 
their work is done, they deserve to gohome. @ 


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The Economist June 20th 2020 


Leaders 


The pandemic 


Not Britain’s finest hour 


The country has the wrong government for a pandemic 


HERE WAS a lot going on in Britain in early March. London 
T stazea an England-Wales rugby match on March 7th, which 
the prime minister attended along with a crowd of 81,000; on 
March uth Liverpool played Atletico Madrid, in front of a crowd 
of 52,000 fans, including 3,000 from Spain; 252,000 punters 
went to the Cheltenham Festival, one of the country’s poshest 
steeplechase meetings, which ended on March13th. 

As Britons were getting together to amuse themselves and in- 
fect each other, Europe was shutting down. Borders were clos- 
ing, public gatherings being banned. Italy went into full lock- 
down on March 9th, Denmarkon Marchuth, Spainon March14th 
and France on March17th. Britain followed only on March 23rd. 

Putting in place sweeping restrictions on everyday life was a 
difficult decision, fraught with uncertainty. Yet the delay is just 
one example of the government’s tardiness. Britain has been 
slow to increase testing, identify a contact-tracing app, stop vis- 
its to care homes, ban big public events, provide its health work- 
ers with personal protective equipment (PPE), and require peo- 
ple to wear face coverings on public transport. As this wave of the 
disease ebbs, Britons are wondering how they came to have the 
highest overall death rate of any country in the rich world, and 
why leaving lockdown is proving so difficult. 

The evidence so far suggests that the British government 
played a bad hand badly. The country was al- 
ways going to struggle. The virus took off in Lon- 
don, an international hub. Britain has a high 
proportion of ethnic-minority people, who are 
especially vulnerable to the disease. And Britons 
are somewhat overweight, which exacerbates 
the impact of the infection. 

Britain has got some things right. Its re- 
searchers have been in the forefront of the race 
to find drugs and create vaccines against the disease. On June 
16th a trial by Oxford University, the first to identify a life-saving 
medicine, showed that a cheap steroid can reduce mortality 
among the sickest patients by a third. A swift reorganisation of 
the National Health Service put paid to fears that it would be 
overwhelmed. But the government has wasted the most precious 
commodity in a crisis: time. In a federal system, like America’s, 
the central government's failings can be mitigated by state and 
local authorities. In a centralised system, they cannot. 

Hindsight is a fine thing, and offers a clarity that is absent in 
the blizzard of events. Yet it is now plain that Britain’s scientists 
initially argued for the wrong approach: accepting that the dis- 
ease would spread through the population, while protecting the 
vulnerable and the health service. Neil Ferguson, an epidemiolo- 
gist at Imperial College London, estimates that had Britain 
locked down a week earlier, at least half of the 50,000-or-so lives 
that have been lost would have been saved. This is more Britons 
than have died in any event since the second world war. 

In retrospect, the government should have probed the scien- 
tists’ advice more deeply. Some of it was questionable. The re- 
ceived wisdom that people would tire of social distancing, and 
that shutting down early would mean loosening early too, was 
just a hunch. Even after the evidence changed, and it became 


se 





clear the country was heading for catastrophe, the government 
was slow to impose the sort of lockdown seen across Europe. 

Yet you do not need hindsight to identify other mistakes. De- 
lays in fixing PPE supply chains, promoting face coverings and 
increasing testing capacity were clearly errors at the time. Des- 
pite the urging of the country’s scientists and the World Health 
Organisation, by the middle of April Britain was still carrying out 
just12,000 tests a day, compared with 44,000 in Italy and 51,000 
in Germany. Because most testing was reserved for hospitals, 
care homes struggled to find out which of their residents and 
Staff were infected. Competition for PPE was fierce, so they also 
struggled to get the kit they needed to protect their workers. 

The government is not solely to blame. The pandemic made 
new demands on the system. Some crucial bits of machinery did 
not work. The publicly owned company which supplies the 
health service with PPE failed. Public Health England, which was 
responsible for testing and tracing, failed. But there was a failure 
of leadership, too. When systems break it is the government’s job 
to mend them; when the evidence argues for drastic measures 
ministers need to take them. 

Britain is still living with the consequences. The spread of the 
virus and the devastation it has wrought have made leaving lock- 
down difficult, as shown by the halting return of pupils to 
school. Only five year-groups have gone back, 
many parents are choosing to Keep their chil- 
dren at home, and the government has aban- 
doned an earlier ambition to get more in. The 
“world-beating” contact-tracing system still 
lacks its app, which is not due to arrive until 
winter. Slow progress at suppressing the virus 
will have grave economic consequences, too. 

These shortcomings have claimed many vic- 
tims. Among them is public trust. Britain went into this crisis 
with a powerful sense of unity and goodwill towards the govern- 
ment. Now Britons think worse of their government's perfor- 
mance during the crisis than do the citizens of any of 22 coun- 
tries polled by YouGov, aside from Mexico. That reflects the 
government’s mistakes and its hypocrisy, after the prime minis- 
ter’s main adviser broke its own rules about when to travel—and 
kept his job. While the world waits for a vaccine this lack of trust 
will make managing the disease a lot harder. 

The painful conclusion is that Britain has the wrong sort of 
government for a pandemic—and, in Boris Johnson, the wrong 
sort of prime minister. Elected in December with the slogan of 
“Get Brexit Done’, he did not pay covid-19 enough attention. Min- 
isters were chosen on ideological grounds; talented candidates 
with the wrong views were left out in the cold. Mr Johnson got 
the top job because he is a brilliant campaigner and a charismat- 
ic entertainer with whom the Conservative Party fell in love. 
Beating the coronavirus calls for attention to detail, consistency 
and implementation, but they are not his forte. 

The pandemic has many lessons for the government, which 
the inevitable public inquiry will surely clarify. Here is one for 
voters: when choosing a person or party to vote for, do not under- 
estimate the importance of ordinary, decent competence. @ 


11 


12 


Letters 


In defence of prosecutors 

As aformer prosecutor, with 
more than a decade of experi- 
ence in Miami, I take issue 
with your statement alleging 
that prosecutors are not in- 
clined to bring charges against 
police because we'd rather 
secure convictions to advance 
our careers (“Order above the 
law”, June 6th). The “elaborate 
culture” described in your 
article of turning a blind-eye to 
police misconduct is an aca- 
demic chimera. I have never 
met a prosecutor who engaged 
in that kind of unethical calcu- 
lus and am confident that it 
would not have been tolerated 
by our fellow prosecutors or 
our managers. That being said, 
I’m sure that racism exists at all 
levels of government. But 
Speciously suggesting that 
there is an unspoken quid pro 
quo between police and prose- 
cutors is false and does noth- 
ing to advance the rights of 
victims of police brutality. 

J.P. NIXON 

Westport, Connecticut 





Onerule for some 
There is another reason for the 
popularity of fake news on the 
political right (“Return of the 
paranoid style’, June 6th). Itis 
the double standards found in 
most of the media's reporting. 
This conservative complaint is 
not entirely a myth. Take 
covid-19. Widespread demon- 
Strations in early May by right- 
wing anti-lockdown protesters 
were depicted by the media as 
selfish and menacing acts that 
would result in the virus being 
spread. Yet the protests that 
erupted over George Floyd’s 
horrific death just a few weeks 
later were praised by the same 
media. The same Democratic 
governors who supported 
lockdown and prevented busi- 
nesses from reopening even 
participated in the marches. 
One group of experts on 
infectious diseases, whom I] 
presume supported the lock- 
downs, penned a letter with 
over 1,200 Signatures stating 
that the protests were neces- 
sary to fight “white suprema- 
cy . Itis hard to imagine that 
these experts would support 





street demonstrations by 
conservatives in the middle of 
a pandemic. Commentators on 
the right had a field day point- 
ing out the hypocrisy. A poli- 
ticised scientific and medical 
community is deeply worrying 
because it boosts the argument 
on the far right that supposedly 
unbiased science and 
scholarship areasham. 

ARVIN BAHL 

New York 





Soldiers for hire 
The trend in Africa towards 
using mercenaries, who work 


_ for private military companies, 
_ has been observed elsewhere 


(“Are mercenaries no longer 
taboo?”, May 30th). Left 


_ unabated, the privatisation of 


watfare will increase the risk of 
human-rights abuses and 


worsen humanitarian 


problems, especially where 
conflict persists and gover- 
nance is weak. 

This is why governments, 
civil-society organisations and 
private-security companies set 
up the International Code of 


Conduct Association for priv- 


ate security-service providers, 
based in Geneva. All those who 


use private contractors for 
_ legitimate security purposes, 


including governments, busi- 
nesses, international organisa- 
tions and NGOs, should exer- 
cise greater responsibility and 
due diligence. The UN now 
requires its own private-secu- 


| rity providers to be members of 


the association, opening up 
their operations to continual 
monitoring and oversight by it. 
Nevertheless, more must be 
done to reel in rogue private 
contractors and to strengthen 
accountability. 

JAMIE WILLIAMSON 
International Code of Conduct 
Association 

Geneva 


The rise of mercenaries in the 
21st century is indeed a strik- 
ing, if not worrying, phenome- 
non. However, the term “mer- 
cenary’ may be misleading 
because it refers to soldiers 
who serve any State for pay, as 
A.E. Housman famously put it 
in verse. Yet most contracted 
soldiers are actually employed 


by their own government, in 
whose armed forces they have 
served, or by its local allies. In 
each case, they are advancing 
national policy. These merce- 
naries might be better defined 
as privatised state forces, 
rather than dogs of war. They 
are closer to Francis Drake than 
John Hawkwood. 

ANTHONY KING 

Chair of war studies 

Warwick University 

Coventry 


Greek lesson 

An article referred to the 
hooligan fish’s genus name, 
Thaleichthys, as Latin for rich 
fish (“Alaska welcomes 
hooligans”, June 6th). The word 
thaleichthys does not stem 
from Latin but comes from 
ancient Greek, a merger of the 
words thalein (to flourish) and 
ichthys (fish). 

HARRY CORDATOS 

Colchester, Connecticut 





Pricing emissions 

Your briefing on carbon pric- 
ing argued that “there's got to 
be something better” than 
border carbon adjustments, in 
effect tariffs on countries that 
are not members of the carbon- 
pricing scheme (“The conten- 
tious and correct option”, May 
23rd). But you did not propose 
any realistic alternatives. The 
European Union's system of 
freely allocating emissions- 
trading allowances to placate 
concerns over carbon leakage 
for energy-intensive, trade- 
exposed industries (EITES) 1s 
becoming unsustainable, now 
that the number of allowances 
in the EU's carbon market must 
shrink to meet tighter climate 
goals. A global carbon market 
involving billions of euros in 
wealth transfers between 
Europe, America and China is 
Utopian. 

Thus, the Eu is left with two 
options: either introducing 
border adjustments or low- 
carbon product standards, 
while progressively diminish- 
ing the use of free allocation. 
Both are complicated, but such 
standards have been proven to 
work in other contexts, suchas 
the Montreal protocol. 

































































The Economist June 20th 2020 


EITE products account for 
less than 2% of global GDP but 
20% of carbon-dioxide emis- 
sions. Without a sustainable 
system to manage internation- 
al differences in climate-policy 
ambition, they will not be 
decarbonised. 

OLIVER SARTOR 
Agora Energiewende 
Berlin 





We all stumble in many ways 
It was apparently too obvious 
that the scriptural basis for 
old-fashioned Christians’ 
fondness for old-fashioned 
communal worship could only 
come from the Old Testament 
to bother checking the quote 
“Don't forsake the gathering of 
the brethren” (“Your own 
personal Jesus”, June 6th.) The 
reference is in fact found in the 
letter to the Hebrews in the 
New Testament. This old- 
fashioned priest would like 
respectfully to remind The 
Economist that the internet 
allows Bible references to be 
checked in a matter of seconds. 
FR PHILIP-THOMAS EDWARDS 
London 


Drunk on power 

Lexington compared Donald 
Trump to one of his most 
hapless and divisive predeces- 
sors, Andrew Johnson (June 
6th). In addition to being an 
unreconstructed shire 
Supremacist and notoriously 
thin-skinned, Johnson was one 
of mid-19th century Washing- 
ton’s heaviest drinkers, to the 
point of arriving at his own 
vice-presidential inauguration 
in1865 drunk and slurring his 
words. 

Some of Johnson’s more 
erratic acts, such as comparing 
himself to Jesus Christ, could 
be chalked up to his extreme 
alcoholism. Trump, a life-long 
teetotaller, has no such excuse. 
SCOTT PLATTON 
Princeton, New Jersey 


Letters are welcome and should be 
addressed to the Editor at 

The Economist, The Adelphi Building, 
1-11 John Adam Street, London wc2n 6HT 
Email: letters@economist.com 

More letters are available at: 
Economist.com/letters 


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Executive focus 13 


Management and Law 





I 
aw 





ZHAW Zurich University of Applied Sciences is one of the largest mutti-disciplinary universities in Switzerland, with over 13,000 students and around 3,000 employees. 


The School of apogee era bir rohotonbllpan leading business schools in Switzerland with internationally recognized Bachelor's and Master's degree 
programs as well as cooperative PhD programs, well-established continuing education programs, and innovative research and development projects. As the 
first business school of a Swiss university of applied sciences, the SML meets the high standards of the Association to Advance Collegiate Schools of Business 
(AACSB), making it one of the top 800 business schools in the world, and is endeavoring the Triple Crown. 


The Department of International Business includes the International Management Institute, the Center for Corporate Responsibility and tears for Inter- 
national Education, Executive Education and International Development & Projects. 


Since the current holder of this position has been appointed President at another higher education institution, we are looking for a new 


Director of the Department of International Business (80 - 100%) 


In this key position, nthe be responsible for the strategic and operational management of the department, which consists of 50 employees. You will head the 
strategic development of the department in all four performance areas: degree programs, research, continuing education, and consulting. In particular, you will 
also have representational and networking duties, within the university as well as outside at both a national and especially an international level. As a member 
of the executive board you will take an active role in the advancement of the School of Management and Law. 


We are looking for someone with excellent communication and integration skills. You should have extensive and proven international research and 
experience. You are a recognized expert in the field of business management, able to think and act as an entrepreneur, and will be familiar with the 

landscape. In addition, your profile includes the ability to network internationally with universities, businesses and with other organizations. You should aleo 
have above-average performance as a professor in degree programs and as a researcher. You have already successfully raised third-party funds for long-term 
research projects. 

In this challenging leadership role you must have a PhD degree and a track record in research. In addition, you should have sound knowledge in strategic and 
operational er evga daa the personne! and financial management of a relevant organizational unit. Negotiation skills in English and preferably in 
German round off your profile 


Do you have any questions’? Foci igalvegor eng orb lye acta please contact Prof. Reto Steiner, Dean, School of Management and Law, 
phone: +41 (0) 58 934 79 44, e-mail: reto.steiner@zhaw.ch 


Does this position interest you? Please send your ppv irae via our online platform (www.zhaw.ch/jobs) to Rosmarie Egle, Head of HR Business Unit, 
ZHAW Winterthur Campus. Application deadline: 5 July 2020 


Further information can be found at www.zhaw.ch und www.zhaw.ch/smi. 





2 School of tur Angewandte Wissenschatten 
| Management and Law 





ZHAW Zurich University of Applied Sciences is one of the largest multi-disciplinary universities in Switzerland, with over 13,000 students and around 3,000 employees. 
Mecdatrctealetber yr. nancies -dhedcnadbaefpied nia hnmapindhsae nitacrbetansigminbsinettg ion wacom An, tecag hat ca ecg babaatobapiait dyes, fd 
as well as cooperative PhD programs, well-established continuing education programs, and innovative research and development projects. As 


programs 
first business school of a Swiss FAN SLaIns Cf eeeihed achannan, Gis BAA. closes the Het ctiminrde of Wis famnciatlion to Acuende Collegune Sehscin of teenies 
(AACSB), making it one of the top 800 business schools in the world, and is endeavoring the Triple Crown. 


The Department of International Business includes the International Management Institute, the Center for Corporate Responsibility and teams for Inter- 
national Education, Executive Education and International Development & Projects. 


To strengthen the Department of International Business we are looking to appoint a 


Head of the International Management Institute (80 - 100%) 


In this newly created position, you will be responsible for the following tasks: 

* Positioning of the institute in the scientific community as an internationally recognized research institution for International Management 

® Acquisition and management of competitive research projects (EU, Swiss National Science Foundation and Innosuisse) and consultancy projects with 
_ international and national partners 





ita lishing and maintaining a strong network of contacts within the scientific and business communities 
* Assuming teaching positions at Bachelor and Master level, in cooperative PhD programs and in continuing education courses (MAS and CAS) in English and 
preferably in German as well 


Fei hia Chabal and werallie peaINSE must have a PhD, a long-term record in research with publications in high quality journals, teaching experience 
at university level and several years of eesional and management experience. You have in-depth knowledge of international business topics, with a wider 
international and intercultural background. Negotiation skills in English and preferably in German round off your profile. 


We offer you a varied job with a high degree of independence and many possibilities for creativity. Supported by a collegial and motivated team, the working 
environment is innovative, dynamic and challenging. 


Do you have any questions? For information concerning the job profile, please contact Prof. Reto Steiner, Dean, School of Management and Law, 
phone: +41 (0) 58 934 79 44, e-mail: reto.steiner@zhaw.ch 


Does this position interest you? Please send your et gtd en via our online platform (www.zhaw.ch/jobs) to Rosmarie Egle, Head of HR Business Unit, 
ZHAW Winterthur Campus. Application deadline: 5 July 2020 


Further information can be found at www.zhaw.ch und www.zhaw.ch/smi. 


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14 Executive focus 





A New Challenge? 











Unique Access to Confidential Opportunities 


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to access $200k to $2m+ unadvertised vacancies worldwide. 


We act discreetly through a 15,000 strong international network. 


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london@interexec.net www.interexec.net +44 (0)20 7256 5085 


EVUROSTAT, LUXEMBOURG 


Director — Sectoral and Regional Statistics (COM/2020/10393) 
Director — Social Statistics (COM/2020/10394) 


Eurostat provides the European For both positions, you will require: 
institutions, Member States, financial @ Experience of leading large multinational 
markets, the business conmnunity, and multi-sectoral tears, 
media and the general public with a high ® Comprehensive understanding of 
Quality statistical information service the development, production and use 
Eurostat is looking for two Directors of European statistics; 
to lead and manage the Directorate for B Highly developed relationship- building, 
Sectoral and Regional Statistics and the networking and problem-solving skills 
Directorate for Social Statistics The European Commission applies an 
The Directorate for “Sectoral and Regional active equal opportunities policy aimed at 
Statistics” is made up of 120 staff with further increasing the share of women in 
a budget of 12.5 million euros, whereas management functions and it particularly 
the Directorate for “Social Statistics* encourages applications from women. 
has 135 staff and manages a budget 
of 7 million euros Please consult the Official Journal 
C 190 A of 8 June 2020 for the 

As Director, you will: detailed vacancy notice for both 
= Lead, inspire and manage large positions (COM/2020/10395 and 
= Oversee the development and ehgiblity and selection criteria 

dissemination of statistics, If you are interested in both positions, 
e Represent the Directorate within _— should apply to each position 

the Commission, with other separately. 

European Union institutions, Registration for applicants 

national statistical authorities https//ec europa eu/dgs/ 

and international organisations. human-resources/ 


The closing date for registration is 
08/07/2020, 12 noon Brussels time. 





Dean of the Faculty of Business 


{ Whe very " 22 | Loc f moe ritive 


About Us: A private UK University offering 
blended and online distance learning 

ptions, Arden University is based in the 
UK with centres across the UK and 
Germany. 


Under the inspirational leadership of the new Vice Chancellor 
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There has never been a more exciting time to join Arden 
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Executive search: 
Director of the Independent Consultation 
and Investigation Mechanism 


We are looking for a manager with more than 12 years 
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if you have experience with other independent 
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For a full description of the role, please visit 
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Closing Date of application: July 7th, 2020. 






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And on the second day... 


Investors act as if Jeff Bezos’s technology conglomerate will keep growing 


like a youthful startup. Can it? 


EXT MONTH Amazon will turn 9,500 

days old. But for Jeff Bezos, the com- 
pany’s founder and chief executive, it is al- 
ways “Day1’. Amazon, he has insisted since 
its founding in 1994, must forever behave 
like a feisty startup: innovate aggressively 
and expand relentlessly. 

Adherence to this rule has made Ama- 
Zon aS convenient to consumers as it is 
feared by businesses which stand in its 
way. Today roughly $11,000-worth of goods 
change hands on Amazon's e-commerce 
platform every second. The company deliv- 
ered 3.5bn packages last year, one for every 


two human beings on Earth. Amazon Web 
Services (AWS), its cloud-computing divi- 
sion, enables more than 100m people to 
make Zoom calls during the day and asimi- 
lar number to watch Netflix at night. In all, 
Amazon generated $280bn in revenues last 
year. 

This year Amazon has become not just 
convenient, but essential. The smiling 
brown package left at the threshold as the 
neon-vested delivery worker backs swiftly 
away has become the hallmark of the 
locked-down pandemic. Shopless and of- 
ficeless life would be unimaginable with- 


out deliveries and cloud-based work—and 
insufferable without distractions like vid- 
eo-streaming. Investors see this as an ac- 
celeration of a long-term trend towards life 
online from which the world will not turn 
back. “The explosive demand created by 
covid-19 catapults Amazon straight into 
2025, Says Michael Moritz of Sequoia Capi- 
tal, a venture-capital firm. 

Amazon’s market capitalisation dou- 
bled to $734bn between 2016 and 2018. 
Since then it has close to doubled again. Its 
Shares trade at 18 times earnings, com- 
pared with 25-35 times for Apple and Mi- 
crosoft, the other members of the trillion- 
dollar-company club. Up and down Wall 
Street, brokers tell clients to hold Amazon 
Shares if they have them, or buy them if 
they don't. 

But Amazon is not without problems. 
Rivals have emerged in both e-commerce 
and the cloud. Questions are being raised 
about its treatment of workers and inde- 
pendent merchants on its platform. Politi- 
Clans in many capitals would like to see it 
broken up. So would some investors, onthe 
basis that they would see higher returns 
that way. “Day 2”, which Mr Bezos charac- 
terises as “Stasis. Followed by irrelevance. 
Followed by excruciating, painful decline”, 
has not yet dawned. But itis well past noon 
on Day1. 


Prime position 

No firm bestrides the physical and digital 
worlds in the way Amazon does. In the 
physical world, it has a logistics system 
second to none. The 150m customers who 
subscribe to its Prime service get all their 
purchases delivered promptly—as well as 
perks like free streaming of videos and 
films—for a flat fee, with same-day deliv- 
ery in some places. The convenience leads 
them to shop more. The logistics system is 
also used to fulfil orders for other compa- 
nies. In 2018 “third-party” sales accounted 
for 58% of sales through the platform. 

The scale of its retail operation gives 
Amazon an unparalleled collection of data 
on the desires and decision-making of 
hundreds of millions of shoppers—the sort 
of data that advertisers love. Amazon’s ad- 
vertising revenues are now $1bn; its 7% 
share of the global online-ad market is larg- 
er than any save Google's (38%) and Face- 
book's (22%). 

In the digital world Amazon dominates 
the cloud-computing business. In 2003 
two engineers suggested that Amazon’s in- 
house IT infrastructure could be provided 
aS aservice to other companies, as space on 
its website and use of its logistics system 
were. That intrigued Andy Jassy, Mr Bezos’s 
technical adviser at the time. Today Mr Jas- 
sy is Aws’s chief executive. The division has 
established the company’s credentials as a 
developer of serious technology on a very 


15 


16 


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Briefing Amazon 
Jeff's journey 
Amazon, $bn Oct 2018 Raises minimum wages in US and Britain 300 
Oct 1998 Launch of Sep 2017 Begins search for HQ2 
first int tional 
ere oe Jun 2017 Buys Whole Foods 
and Germany Q1 2015 Breaks out AWS numbers for the first time 230 
Jul 1994 Jeff Mar 2000 Aug 2014 Twitch (video 
Bezos drives Dotcom bubble bursts streaming platform) acquired 
from New York : 
City to Seattle Jun 2014 Fire phone launch 200 
Mar 2012 Buys Kiva Systems, 
a warehouse-robotics company 
Sep 1997 Nov 2000 Sep 2011 Kindle Fire 150 
One-click Marketplace tablet goes on sale 
hoppi | h 
eee ‘as Nov 2010 Launch of “price 
launch ; 
check” barcode-reader app 
Annual 
May 1997 Aug 2007 AmazonFresh — Nov 2007 revenue 100 
Initial grocery launch in Seattle | First Kindle 
public e-reader 
offering ea BUDS 
Amazon Web Services 
Jul (AWS) launch 50 
1995* Feb 2005 Prime é 
First memberships a Annual 
book open = a net profit 
sold = See ——— — 0 


SINE ieee shoes iden Tein ine cule id Senin ene aie ie AN ie es Se eee ee ele ee ee ee 


1994 96 98 2000 02 04 06 


Sources: Bloomberg; The Economist 


» large scale, rather than just a user of it. It 


also provides lots of cash. Last year AWS 
contributed $35bn to Amazon’s sales—and 
a fat $9.2bn in operating profits. 

The Aws piggy bank has supported both 
expansion in retail—in 2017 Amazon paid 
$14bn for Whole Foods, an upscale super- 
market chain—and new projects which the 
company’s engineers cook up at a prodi- 
gious rate. One of the whizziest is Project 
Kuiper, a satellite-broadband venture; an- 
other is Haven Healthcare, a not-for-profit 
aimed at reducing health-care costs, 
created with JPMorgan Chase, a bank, and 
Berkshire Hathaway, a conglomerate. 

Amazon is still growing briskly, espe- 
cially so for a set of multi-billion-dollar 
businesses. But growth is no longer accel- 
erating in a day-one-ish way. Start with re- 
tail. Between 2016 and 2019 growth in glo- 
bal sales of goods, Amazon's own and third 
parties’, on its websites slowed from an an- 
nual rate of 27% to 18%, calculates Sanford 
C. Bernstein, a broker. The effects of co- 
vid-19 might drive it back up to 23% for 
2020 as a whole, but the long-term trend is 
not expected to change. 

And the coronaviral sales boost has 
come at a cost. The company is hiring 
175,000 new workers in America to cope 
with surging demand; it has invested 
heavily in covid-proofing its operations; 
and it has sacrificed earnings by prioritis- 
ing the delivery of essential items, which 
tend to have lower margins, while barring 
many lucrative non-essentials from ware- 
houses and removing ads for them to tamp 
down demand. Even as sales rose by 26% 
between January and March, profits fell by 
29% compared with the previous year. 

With its range narrowed and shipping 


08 10 9 [Pee Mae ie 
*Also reported as April 


slowed, Amazon could not keep up with 
Soaring online demand (see chart 2). In 
America and elsewhere shoppers turned to 
rivals, often on a “click and collect” basis. 
According to data from Rakuten Intelli- 
gence, an independent subsidiary of a Japa- 
nese e-commerce firm, Amazon’s share of 
online spending in America was 34% in 
mid-April, down from 42% before covid-19. 
For years Amazon has led the way as an e- 
commerce pioneer, says Mark Shmulik of 
Bernstein; now every big retailer will turn 
to the web as never before. Long-estab- 
lished retailers like Target and Walmart are 
already making hay. 

Big resurgent rivals are not Amazon’s 
only competition. Shopify, a Canadian 
firm, offers retailers a way to sell online— 
and obsesses over the experience it pro- 
vides to the companies which use it just as 
much as Amazon obsesses over its custom- 
ers. It has gone from nowhere a few years 
ago to 5.9% of America’s online-retail mar- 


= 
Every day's like Christmas 
United States, online retail spending, $bn 


© Actual 





== Fxpected 





Mar Apr 


2020 


Dec Jan Feb 
2019 
Source: Adobe Analytics 


Nov May 


The Economist June 20th 2020 


ket, second only to Amazon. It is now to be- 
come the back-end for Facebook Shops, the 
social networking giant’s new e-commerce 
venture. Taking a lead from Alibaba, Chi- 
na’s dominant online retailer, Facebook 
hopes to provide a setting where people 
will browse and socialise in a way that no 
one does on Amazon. 

Amazon can no longer count on Prime 
to fuel prodigious growth at home; most 
American households that can afford the 
$120 fee are already members. Future retail 
growth will therefore depend on markets 
elsewhere. These currently account for 
29% of the company’s total non-AWs rev- 
enues. In western Europe, Amazon is en- 
trenched and has been doing well. But an 
ageing, economically sluggish continent is 
not exactly a long-term growth and profits 
motor. Many of the region’s consumers 
tend to browse online then buy offline. 
Meanwhile, things in emerging markets 
are not going to plan. 

A year ago, after 15 years of trying, Ama- 
Zon gave up on China. In 2012 it had man- 
aged to win an e-commerce market share of 
7% there, but Alibaba and the other local 
success story, JD.com, squeezed it out, 
poaching customers with screaming deals 
and promotions. Had Amazon fought hard- 
erit might still have lost; itis possible, even 
likely, that the Communist Party would not 
long have tolerated a big American retail 
presence. But it does bear some blame: it 
failed to recruit talented locals, and made 
too many decisions in Seattle. 


Failing to deliver 

Elsewhere in the emerging world Amazon 
is still burning billions with no returns in 
sight. Its $6.5bn investment in India looks 
troubled. The nationalist government of 
Narendra Modi is making life hard for for- 
eign firms—and easier for its local champi- 
on, Reliance Jio (in which Facebook is in- 
vesting $5.7bn). In Latin America Amazon’s 
3% share of online retail is barely one-fifth 
that of MercadoLibre, an Argentine firm 
better at dealing with bad roads, banditry 
and other local pitfalls. Because profits 
from western Europe are not enough to off- 
set losses in the developing world, Ama- 
zon’s international division has been los- 
ing money for years. 

Investors have mostly shrugged off Am- 
azon’s global retail slowdown. The reason 
is Simple—aws. Its operating income usu- 
ally adds up to well over half of Amazon's 
total—in the most recent quarter it ac- 
counted for 77%. Bernstein estimates that 
Amazon’s retail business had an operating 
margin of -1% 1n 2019, and AWS 26%. But the 
cloud is getting crowded. Alibaba, Google 
and Microsoft have expanded their cloud 
offerings (though Alibaba Cloud still earns 
almost all its revenue in China). Globally, 
Aws’s share of cloud-computing declined 


from 53.7% to 47.8% between 2016 and 2018, >> 


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The Economist June 20th 2020 


> according to Gartner, a research firm, while 
Microsoft's nearly doubled to 15.5%. Rev- 
enue growth at Aws has slowed sharply, 
from 49% in the second quarter of 2018, 
year on year, to 33% in the first quarter of 
2020 (see chart 3 on next page). 

The Aws cloud is considered superior to 
the others in terms of reliability and speed. 
Azure experiences more service outages, 
for example. Aws also allows its customers 
to do more sophisticated things. But the ri- 
vals are good enough for most purposes, 
and improving. Large firms may prefer to 
deal with Microsoft because they have been 
dealing with it as a software provider for 
decades. George Gilbert of TechAlpha Part- 
ners, a consultancy, says that whereas AWS 
offers a wide range of platform services 
that suit the most technology-centric cus- 
tomers, Microsoft concentrates on inte- 
grating its services in order to make them 
accessible to mainstream customers. 

Aws has the resources to defend its mar- 
ket-leading position. But in the cloud wars 
any handicap could cost it dearly. Its parent 
may be becoming one such drag. For years 
being part of Amazon was a huge advantage 
for AWS, says Heath Terry of Goldman 
Sachs, a bank. It needed cash from the rest 
of the group, as well as technology and 
data. But Mr Bezos’s habit of moving into 
new industries means that there are now 
ever more rivals leery of giving their data to 
it. Potential customers worry that buying 
services from AWS is tantamount to paying 
a land-grabber to invade your ranch. Wal- 
mart has told its tech suppliers to steer 
clear of AWS. Boards of firms in industries 
which Amazon may eye next have directed 
their IT departments “to avoid the use of 
AwS where possible”, according to Gartner. 

This has fuelled talk that Aws might be 
better off pursuing its future as a separate 
company. In addition to putting a healthy 
distance between itself and the Amazon ex- 
pansion machine, Aws would no longer 
need to cross-subsidise the firm’s less lu- 
crative ventures. The transparency that 
would be offered into the financials of each 
business by a break-up would allow fund 
managers a better insight into how the new 
firms fulfil their investing criteria. In fi- 
nancial markets, a separation has been ex- 
pected for the past year or so, according to 
the head of global internet banking at a 
leading financial institution. 

Mr Jassy says that AWS was always de- 
signed to be separable from the rest of Am- 
azon. If things get to the point where being 
inside Amazon is more disadvantage than 
advantage, says Mr Terry, Aws could go its 
OWN Way. 

Not that Aws gets nothing from being 
part of Amazon, however. Some data-dri- 
ven technologies work better at scale. Data 
from Alexa, the virtual assistant Amazon 
makes available through its Echo smart 
speakers, helps feed Amazon's voice-rec- 


ognition algorithms, which can then be 
sold as a service to AWS customers, as well 
as back to shoppers. More shoppers and 
more data mean better algorithms, and so 
on. Yet such benefits could easily be set 
aside if AWS’s position inside Amazon con- 
tinues to give powerful rivals such as Mi- 
crosoft and Google a winning sales pitch. 

Letting go of Aws would mark by far the 
most dramatic reorganisation in Amazon's 
unremittingly accretive history. Analysts 
reckon the unit accounts for athird or more 
of Amazon’s value. A plausible valuation of 
$500bn would see it start out as one of 
America’s ten most valuable firms. And de- 
spite slowing growth it is still expanding 
twice as fast as the retail bit. If it grew at 
20-30% a year for a decade—which is more 
slowly than in the past—while maintain- 
ing its margins, it could turn into the 
world’s biggest profit-generator. 


The great migration 
There is no historical precedent for a half- 
a-trillion-dollar firm growing that fast for 
that long. But the notion is not entirely out- 
landish. Less than 10% of the estimated 
$4trn in annual global IT spending has so 
far migrated to the cloud. Mr Jassy is not 
alone in arguing that “the overwhelming 
majority’ of computing is going to end up 
there one day. A company focused entirely 
on making that happen could become vast. 

How would Amazon fare without Aws? 
In some ways, the change might be salu- 
tary: some close to Amazon feel that it has 
grown too big. Elements of unproductive 
bureaucracy and politicking are creeping 
in, they report. A lot of high-level Amazon 
meetings these days are about lobbying for 
promotion rather than innovation or oper- 
ational excellence, says a former executive. 
A slimmed-down and refocused company 
might be ona better footing. 

It would, though, also be one with much 


Briefing Amazon 


less cash to back its further growth. As well 
as helping pay for the purchase of Whole 
Foods, AWS money has paid for interna- 
tional expansion and heavy investment in 
“last-mile” delivery, among other things. If 
the e-commerce rump were to inherit a 
hefty chunk of the company’s $59bn cash 
pile it might be able to keep spending—but 
not for long, at its recent rates. An Amazon 
without Aws “might not be one I would 
want to own’, Says a representative of a big 
institutional shareholder in Amazon. 

Mr Bezos’s views on a break-up are un- 
known (he declined to be interviewed for 
this article). He may believe that Aaws and 
the rest of the group are symbiotic and 
would both suffer if separated. Even if he 
does not, though, it is a fair bet that he 
would be reluctant to let go of a cash-cow 
that enables Amazon to pursue new ven- 
tures. In time, the ad business might grow 
to fill that role. Last year it boasted an oper- 
ating margin of 49%, and it is standing up 
to the current collapse of the advertising 
market better than its larger online rivals. 
But it is still small compared with Aws. 

Whatever Mr Bezos’s views are, though, 
they will not be the final word that once 
they would have been. For a few years Seat- 
tle tech insiders have reckoned that Mr Be- 
zos has been preparing to give up the top 
job to become executive chairman. He has 
already shed some of the management bur- 
den. In 2016, when Mr Jassy became chief 
executive of Aws, he named Jeff Wilke as 
“chief executive worldwide consumer’. 

Though the pandemic has now brought 
Mr Bezos back into day-to-day involve- 
ment in the e-commerce operation, in re- 
cent years he has mostly confined himself 
to new projects such as Amazon Go, a till- 
less supermarket, and, earlier, Alexa. He 
has also been devoting a fifth of his work- 
ing week to Blue Origin, his private rocket 


17 


company, which is currently working on >> 





Buy CSS PMS Books Online as Cash on Delivery All over Pakistan https://cssbooks.net 


18 Briefing Amazon 


Cloud and sunshine 
Amazon Web Services 





Revenue Revenue Operating income as a share 
$bn % increase ona year earlier of Amazon's total operating 
40 80 income, % 
200 
60 
Exe 
at | 100 
20 50 
2 0 





2013 14 15 hs tsi NS: 


Sources: Bloomberg; company reports 


» satellite launchers to compete with those 
of SpaceX and a Moon lander for NASA. 

There is also the matter of his private 
life. In January last year Mr Bezos tweeted a 
bombshell: he and his wife, MacKenzie, 
were getting divorced. Days later the Na- 
tional Enquirer published details of an ex- 
tramarital affair. The news shook the tight 
group of executives who run the company 
alongside him. Amazon's meritocratic cul- 
ture depends on “truth-seeking’, says a for- 
mer senior executive. But it only works “if 
people at the top behave accordingly’, he 
adds. “Jeff’s episode put a dent in the com- 
pany’s values.’ Investors, for their part, 
fretted that Mr Bezos’s eventful personal 
life had become a distraction. 

If Amazon fissions, Mr Jassy and Mr 
Wilke will be the obvious candidates to run 
the two firms—if, that is, one or other of 
them does not leave before then (they are 
both high on every recruiter's wish list). Mr 
Bezos might stay on to oversee both com- 
panies as executive chairman. Amazon’s 
board will want to hang on to his magic 
touch for as long as possible, says a head- 
hunter who knows the firm well. 

But over time his influence may dwin- 
dle. He remains the company’s biggest 
shareholder—and thus the richest man in 
the world. His divorce settlement cut his 
economic stake from 16% to12% (though he 
kept the voting rights of the portion he gave 
up). Still, every year he sells a slug of stock 
to fund Blue Origin, so in some years’ time 
he may come to own less than atenth of his 
creation. Excluding the big three passive 
fund managers, the four largest institu- 
tional investors in Amazon already control 
10% of the stock. And unlike many technol- 
ogy firms, Amazon has no dual-class 
shares that would let Mr Bezos control the 
board regardless of the size of his stake. 

There might be other attractions to new 
leadership. While on Wall Street and in Se- 
attle investors and insiders talk of one way 
of splitting up the company, in Washing- 
ton, Dc, they talk of another. A growing 
chorus of politicians, accompanied by an 
ensemble of antitrust experts, accuse Ama- 


po or or oo or a 


2013 14 15 MiGWI7 View 13 





DOSnI4e elo oe Ii, 18 19 
*No data 


zon of abusing the market power its size 
and reach provide. 

Elizabeth Warren, a Democratic senator 
and scourge of big tech, has proposed sun- 
dering Amazon's private-label business— 
which produces goods for sale on the site— 
from that of third-party sellers on its plat- 
form. The company would also have to sell 
Whole Foods and Zappos, an e-commerce 
rival it bought over a decade ago. Two Re- 
publican senators, Ted Cruz and Josh Haw- 
ley, also speak of breaking up big tech, for 
different reasons. Donald Trump reserves 
especial spite for Mr Bezos on the basis that 
he owns the Washington Post, a newspaper 
critical of the president. 


Soul-searching in Seattle 

Anti-Amazon feeling grew stronger in 
April, after the Wall Street Journal reported 
that Amazon employees used data on 
third-party sellers to pinch ideas for the 
private-label business. Amazon has 
launched an internal inquiry into the inci- 
dent, which violated the company’s own 
guidelines. But lawmakers who had been 
investigating Amazon, Alphabet (Google's 
parent), Facebook and Apple for antitrust 
violations, still threatened to subpoena Mr 
Bezos if he did not voluntarily appear at an 
upcoming hearing. (In June Amazon sig- 
nalled it was ready to send Mr Bezos.) The 
European Commission is reportedly pre- 
paring to file formal antitrust charges 
against Amazon over its treatment of third- 
party sellers in the coming weeks. 

In America Amazon’s market share is 
nearly two-fifths in e-commerce, but only 
6% in all of retail. The firm’s low prices and 
high-quality service certainly do consum- 
ers no harm. But even Amazon insiders say 
accusations of stealing small firms’ ideas 
are becoming harder to brush off. 

So are criticisms with respect to Ama- 
zon's treatment of its workers, a large pro- 
portion of whom are African-American or 
Hispanic. During the pandemic a number 
of warehouse employees have been publi- 
cising safety shortcomings to activists and 
the media. According to a tally by an Ama- 


The Economist June 20th 2020 


zon worker, there have been 1,079 corona- 
virus cases among American warehouse 
workers. Amazon has said that the firm’s 
rates of infection and quarantine are never 
higher than those of the communities in 
which its facilities are located, and some- 
times lower. In May a group of13 state attor- 
neys-general asked Amazon to hand over 
data on covid-related infections and 
deaths at its warehouses. 

In May a furore erupted after Amazon 
fired two tech employees who worked on 
user-experience design, after they organ- 
ised a live-stream for warehouse workers 
to explain their pandemic safety fears. 
Democratic senators have demanded more 
information from Amazon on the dismiss- 
als. So have a handful of shareholders. 

The incident prompted the resignation 
of Tim Bray, a respected senior vice-presi- 
dent at AWS (and co-inventor of XML, an in- 
ternet data-description language). The 
sackings, and those of other activists at the 
firm, Mr Bray wrote, were evidence of a 
“vein of toxicity” running through Ama- 
zon’s culture. A leading engineer inside 
Amazon's Grand Challenge team, a secre- 
tive skunk-works unit working on ambi- 
tious projects, says morale is rock-bottom. 
He plans to leave. 

The risk of Amazon’s labour practices 
inviting more regulatory scrutiny—and, 
possibly worse, alienating brainboxes—is 
not lost on investors. The firm needs to be 
“very, very careful”, says the institutional 
Shareholder’s representative. Amazon 
raised workers’ wages by $2 an hour from 
mid-March until June ist and allowed 
warehouse employees worried about in- 
fection to go on unpaid leave without the 
risk of being sacked. It made 150 changes to 
the way its warehouses function to ensure 
social distancing and more cleaning. 

Still, says the shareholder rep, rather 
than leading by example on labour Amazon 
“seems to be playing catch-up”. Mr Bezos, 
who has added $54bn to his net worth 
thanks to his company’s buoyant share 
price while low-paid warehouse workers 
toil through the pandemic, “needs to lean 
over backwards to make sure workers are 
properly treated’, cautions a leading Sili- 
con Valley venture capitalist. 

The antitrust cudgel may in fact be an 
attempt to force Amazon to spruce up its la- 
bour track record. How far regulators are 
willing to go will depend on the public 
mood. Americans’ reliance on the com- 
pany and the goodwill it has generated 
with consumers may help it, says an anti- 
trust expert close to Congress. An AWS spin- 
off, if it occurred, might obviate the need 
for drastic antitrust action. 

Mr Bezos has managed to keep Amazon 
from ageing beyond Day 1 for longer than 
most companies can dream of. But not 
even the best magician can stop the pas- 
sage of time. One day, Day 2 willcome. @ 


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United States 


State finances 


The calamity ahead 


Covid-19 is a disaster for state budgets. This threatens to cost lives and set back 


economic recovery 


HE START of the fiscal year—July 1st in 

most states—is usually about as excit- 
ing as a 501(a) tax filing and as unpredict- 
able as a Saudi weather forecast (sunny 
again!). Not this time. State tax revenues 
collapsed in April, falling on average by 
half, according to the Urban Institute, a 
think-tank. Demands on spending soared 
because the states are responsible for 
much of America’s spending on public 
health, unemployment and policing. By 
some calculations, state-budget deficits 
will reach a quarter of revenues in the com- 
ing fiscal year—or would do, if most states 
had not bound themselves by law to run 
balanced budgets. So instead of vast defi- 
cits, the states will have to make savage 
cuts to public services in the midst of a re- 
cession and pandemic. Through no fault of 
their own, their budgets are out of control 
and are about to hit the buffers. 

Two-thirds of state revenues come from 
income taxes or sales taxes. Sales taxes 


have been devastated by the closure of 
shops and restaurants and income taxes by 
the rise in unemployment. The jobless rate 
Was 13.3% in May, according to the Bureau 
of Labour Statistics, up from 3.5% in Febru- 
ary. Each percentage-point rise in the un- 
employment rate cuts state tax revenues by 
over $40bn, or 4.5%. 

Revenues have fallen so fast that some 
States do not even know by how much. Of 
those that have reported estimates, Louisi- 


+ Also inthis section 
20 LGBT rights 


21 Midwives 


22 John Bolton's revelations 


22 Bill de Blasio 


23 Maine politics 


24 Lexington: A shovel-ready project 


The Economist June 20th 2020 





ana saw tax revenues drop by 43% in April 
compared with April 2019 (“surreal”, the 
State treasurer called that). New York's 
were down by two-thirds and California's 
income-tax receipts plunged 85%. Rev- 
enues in April were doubly depressed be- 
cause the federal government, with states 
following suit, moved tax-filing day from 
April to July, causing uncertainty about 
when income tax will be paid. Revenues 
may recover somewhat. But Ronald Alt of 
the Federation of Tax Administrators, 
which advises state governments, reckons 
that, collectively, state tax revenues will 
fall by $150bn between the start of April and 
the end of June. He expects income taxes to 
fall by half and sales taxes to fall by 44%. 
This decline is larger in nominal terms 
than during the Great Recession, when 
state tax revenues fell by $100bn from peak 
to trough in three years. 

State and local governments spend 
Slightly less than the federal government, 
about 17% of GDP, compared with a federal 
Share of 20%. But they are disproportion- 
ately important to the coronavirus rfe- 
sponse because unemployment insurance, 
public health and Medicaid (which pro- 
vides health insurance for the poor) are 
largely organised by states. Connecticut 
usually gets 3,000-3,500 new unemploy- 
ment claims a week. In April it got 30,000 


in a week. In New Jersey, enrolment in >> 


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20 United States 


>» Medicaid was nine times higher in April 
than it had been a year earlier. 

For the past nine years, states have cau- 
tiously increased spending. At the start of 
2020, before the pandemic hit, states were 
expecting increases in both revenues and 
spending of about 2%. Instead, the virus 
has driven a wedge between the two. 

Lucy Dadayan of the Urban Institute es- 
timates that the gap will be around $75bn 
in fiscal 2020 and $125bn in fiscal 2021. The 
Centre on Budget and Policy Priorities 
(CBPP), another think-tank, reckons it will 
be even higher: $120bn in the current fiscal 
year, $315bn in fiscal 2021 and $180bn in 
2022, a grand total of $615bn, which is six 
months of current spending. (These fore- 
casts show the difference between what 
was expected before the pandemic and 
what is expected now.) 

The range in estimates reflects the diffi- 
culty of forecasting the impact of the pan- 
demic and expectations of spending cuts. 
The exact amounts, however, matter less 
than the fact that, first, the figures are large 
and, second, that most states cannot run 
deficits anyway, so the numbers indicate 
the extent of future spending cuts, rather 
than deficit-financing needs. 

These cuts will be mitigated by states’ fi- 
nancial reserves and by federal help. The 
rule that states must balance budgets has 
made them fiscally conservative. Most 
used the 2010s to build up reserves. Accord- 
ing to the Pew Charitable Trusts, a nonpar- 
tisan think-tank, these reached $75bn in 
2019, the highest ever, equal to 8% of 
Spending (or 28 days’ worth). But thatis just 
an eighth of cBPP’s forecast of the shortfall 
in 2020-22. The costs of the pandemic have 
Swept away the benefits of caution. 

The federal government has also of- 
fered help, but not enough. It is financing 
new unemployment insurance introduced 
during the pandemic and in March gave 
States an extra $11i0bn. But the money may 
not be used to compensate for revenue 
shortfalls. And anyway, the (bipartisan) 
National Governors Association reckons 
States need $500bn. Glenn Hubbard, the 


=z 
Dire states 


United States, combined state-budget 
shortfalls, $bn, 2020 prices 


Great Recession Covid-19, forecast 





-100 
-200 
-300 
Ce ee 


2009-10 11 


202021 22 


Source: Centre on Budget and Policy Priorities 


former head of George W. Bush’s Council of 
Economic Advisers, calls the extra help 
“about as close to a no-brainer...as possi- 
ble”. In mid-May the House of Representa- 
tives promised $500bn. But the bill stalled 
in the Senate, where the majority leader, 
Mitch McConnell, has said states should be 
allowed to declare bankruptcy instead 
(which may not be constitutional). This 
leaves states struggling to balance budgets 
largely on their own. 


Prepare for pain 

With tax increases politically unfeasible at 
the moment, states will have little choice 
but to impose big spending cuts. Ohio’s go- 
vernor has instructed state agencies to 
chop their budgets by 20% in the coming 
fiscal year. In Washington state, the reduc- 
tion is 15%. California’s governor and legis- 
lators are deadlocked over plans for $14bn 
of spending cuts, but even these would not 
be enough to close the expected $54bn def- 


LGBT rights 


A wider umbrella 


NEW YORK 


The Economist June 20th 2020 


icit. Spending cuts imply lay-offs. The 
States have already furloughed or sacked 
1.5m workers in March, April and May, 
twice aS many aS 1n 2009-11. 

Such cuts will be a drag on growth when 
recovery starts. As Pew’s Josh Goodman 
points out, states were reining back spend- 
ing years after the Great Recession, result- 
ing, as late as 2018, in shortages of teachers, 
and infrastructure spending at 50-year 
lows as a Share of GDP. The budget squeeze 
now will be greater than it was then. And 
remember what programmes are provided 
by states: Medicaid at a time of covid; un- 
employment insurance at a time of reces- 
sion; policing at atime of protest. In the ab- 
sence of proper presidential leadership, 
governors such as Maryland's Larry Hogan 
and Michigan’s Gretchen Whitmer have 
provided much of what useful guidance 
America has had during the pandemic. But 
they, and other governors, must now brace 
themselves forthe coming crash. @ 


America’s Supreme Court protects gay and trans workers against discrimination 


HEN ANTHONY KENNEDY retired in 
V V 2018, gay-rights supporters fretted 
over the loss of a justice who had anchored 
four expansions of gay and lesbian rights. 
With his replacement by the more conser- 
vative Brett Kavanaugh, and President Do- 
nald Trump’s appointment of Neil Gorsuch 
18 months earlier, LGBT activists worried 
the progress would come to a halt. On June 
15th the Supreme Court allayed those fears 
with a momentous decision that protects 
gay and transgender people against dis- 
crimination in the workplace. 

By a 6-3 margin, the court ruled that Ti- 
tle VII of the Civil Rights Act of 1964—a pro- 
vision that bars discrimination “because 
of” a number of characteristics including 
“sex’—prohibits firing or disfavouring 
workers on the basis of their sexual orien- 
tation or gender identity. The majority 
view was penned by Justice Gorsuch. 

Roughly half of America’s states have 
laws of their own protecting gay and trans 
workers; the rest do not. So until the latest 
decision, known as Bostock v Clayton Coun- 
ty, an employee in much of America could 
legally marry a member of the same sex 
over the weekend and be legally sacked for 
being gay when returning to work. Now 
some 8.1m LGBT workers across America 
will enjoy federal protection from discrim- 
ination when they clock in. 

At the oral arguments last October, Jus- 


tice Gorsuch leaned towards the LGBT 
plaintiffs’ view. But he feared that a win for 
them might herald “massive social upheav- 
al”. Now, as author of the majority opinion 
(attracting the votes of Chief Justice John 
Roberts and the four more liberal justices), 
his worries seem to have vanished. “Sex 
plays a necessary and undisguisable role” 
in an employer's decision to fire a worker 
for being gay or transgender, he wrote, and 
that is “exactly what Title VII forbids”. 

The matter was simple, he contended, 
involving “the straightforward application 
of legal terms with plain and settled mean- 
ings’. A host of Supreme Court precedents 
stand for the same principle. These include 
discrimination against mothers, sexual 
harassment against men and other types of 
workplace bias Congress may not have 
contemplated in 1964. No one might have 
imagined back then that Title VII would 
prohibit a boss from firing gay or trans 
workers because of their identity, but “ma- 
jor initiatives” like a civil-rights law often 
have “unexpected consequences’. 

Justice Kavanaugh wrote a dissent ad- 
monishing the majority for legislating 
from the bench. “[W]e are judges,’ he 
wrote, “not members of Congress.” For the 
more vituperative Justice Samuel Alito 
joined in dissent by Justice Clarence 
Thomas), the “radical” result 1n Bostock is 


based on “preposterous” reasoning. Al- >> 


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The Economist June 20th 2020 


>» though the majority invokes the late Jus- 
tice Antonin Scalia’s teaching that judges 
should pay heed only to the words of a stat- 
ute, Justice Alito wrote, “no one should be 
fooled” by the ruling. Justice Gorsuch’s 
opinion is “like a pirate ship” sailing “un- 
der a textualist flag” but silently “updat- 
[ing] old statutes so that they better reflect 
the current values of society”. 

What are the broader implications of 
the ruling for LGBT rights? It depends 
whom you ask. Justice Gorsuch left open 
whether employers with religious objec- 
tions to the gender identity or sexuality of 
their workers may one day claim an ex- 
emption from anti-discrimination laws. 
But his erstwhile concern about social up- 
heaval is nowhere to be found in the major- 
ity opinion. Bostock is just about workplace 
rights, he wrote, not “sex-segregated bath- 
rooms, locker rooms and dress codes”. The 
court does not “prejudge” these questions. 

Justice Alito’s 54-page jeremiad berated 
the majority for failing to grapple with the 
potential implications. Many federal laws 
bar sex discrimination, and the majority's 
“brusque refusal” to contemplate how they 
will be altered by the Bostock ruling is “irre- 
sponsible’. What about transgender em- 
ployees challenging health plans that “do 
not cover costly sex-reassignment sur- 
gery ? Or women who have suffered sexual 
assault, for whom viewing “the anatomy of 
a male inaconfined and sensitive location 
such as a bathroom or locker room can 
cause serious psychological harm”? Or a 
transgender person's desire to competeina 
sporting “competition previously reserved 
for members of one biological sex’? 

Religious conservatives who helped 
elect Mr Trump and were cheered by his Su- 
preme Court picks are shocked by Justice 
Gorsuch’s defection from the cause. Their 
dismay may do little to soften evangelicals’ 
support for Mr Trump in November, but the 
decision to stand up for gay and trans 
rights may undermine several of his ad- 
ministration’s policies targeting LGBT peo- 
ple. A recently announced regulatory 
change allowing doctors to deny health 
care to trans people under the Affordable 
Care Act is now under acloud, as are moves 
to allow adoption agencies to shut out 
Same-sex couples and let school districts 
discriminate against trans students. 

For now, Bostock seems bound to serve 
conservatives with an example of two jus- 
tices playing against type to burnish the 
image of the Supreme Court as a fair-mind- 
ed tribunal. Chief Justice Roberts is partic- 
ularly keen to rescue justices from the 
charge that they are merely politicians in 
robes. In 1989 Scalia joined the liberal side 
of the court to strike down a law banning 
flag-burning. That was his exhibit A of how 
his jurisprudence was rooted in law, not 
personal ideology. Justice Gorsuch, Scalia’s 
successor, nowhasasimilarlandmark. @ 


United States 


BiB 50z 


DFW MIDWIFE 
COLLECTIVE 


i __- 





Ripe for rebirth 


WASHINGTON, DC 
The pandemic is making America rethink its shunning of midwifery 


N A NORMAL year, Robina Khalid might 

take on 70-80 clients at her midwifery 
practice in New York City. But 2020 has 
not been a normal year. She got around 
150 calls in the first half of March alone. 
Some enquiring women were already 
late in their third trimester, she says, but 
were terrified of having their babies ina 
hospital for fear of contracting covid-19. 
Ms Khalid’s practice was not the only one 
inundated by calls from women enter- 
taining the idea of ahome birth. As the 
virus spread, so too did interest in al- 
ternative birthing options. 

Even in cities at first less hard-hit 
than New York, many expectant mothers 
avoided hospitals where they could. 
Nancy Gaba, chair of obstetrics and 
gynaecology at the George Washington 
University Hospital in Washington, DC, 
noticed an initial uptick in unplanned 
home births around the time the World 
Health Organisation (WHO) declared the 
coronavirus outbreak a pandemic. 

In the past, midwives have tended to 
be marginalised in America. Licensing 
rules vary across States, and insurance 
coverage for midwifery services is 
patchy. By contrast, Sweden has a 300- 
year-old tradition of professional mid- 
wifery. When a hospital in London re- 
cently went into partnership witha 
football stadium to give women a safe 
place for their prenatal check-ups during 
the pandemic, midwives were among the 
Staff immediately brought in to help. In 
poorer countries, too, midwives are 
essential to maternal and public health. 

Beyond the pandemic, American 
women face two problems that licensed 
midwives can help with. First, America is 
one of only 13 countries where the ma- 


ternal mortality rate increased between 
2000 and 2017, putting it in the august 
company of Venezuela and Syria. The 
risk of dying during childbirth can be 
exacerbated by a lack of trust between 
patients and health workers. In America 
that is especially true for black women, 
who die from pregnancy-related compli- 
cations at more than three times the rate 
that white women do. Midwives cannot 
perform complex surgery or deliver 
babies for women with certain chronic 
health problems. But they can support 
low-risk women through labour. That 
frees doctors to do the harder stuff. 

Second, because midwives’ calling- 
card is not intervening in labour, col- 
laboration between midwives and obste- 
tricians has been shown to lower the 
number of Caesarean sections. Nearlya 
third of babies born in America each year 
are delivered by c-section. But the WHO 
reckons that the necessary rate hovers 
between 10% and 15%. Caesarian deliv- 
eries can be life-saving for new-born 
babies and mothers, but they are major 
surgeries. They increase the risk of in- 
fection, haemorrhages and blood clots. 
George Washington University Hospital 
introduced midwifery services a decade 
ago, and has since seen its c-section rate 
drop by nearly 6%. 

Will the interest in midwifery outlast 
the pandemic? It seems likely. The prac- 
tice was growing even before the virus 
Started to spread. And collaboration 
between doctors and midwives can prove 
effective. “Our doctors were willing to 
learn from our midwife colleagues,” says 
Dr Gaba. “If other places could do some- 
thing like that, I think women would 
really benefit.” 


21 





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22 United States 


John Bolton's revelations 
National security 
chastiser 


Details emerging from John Bolton’s 
book are damning for Donald Trump 


jis JUDGE By the way he slams his former 
top officials, President Donald Trump 
clearly needs to review his hiring policies. 
Earlier this month he called his first de- 
fence secretary, Jim Mattis, “the world’s 
most overrated general’, after Mr Mattis 
criticised the use of force to remove protes- 
ters from Lafayette Square near the White 
House. This week it is the turn of John Bol- 
ton, his former national security adviser, to 
come in for attack: Mr Trump called him “a 
washed-up guy’ and “a liar” whom every- 
one in the White House hated. Mr Bolton 
has infuriated his ex-boss by writing a book 
full of damning details from his year-and- 
a-halfin the Trump administration. 

The book, “The Room Where It Hap- 
pened”, was originally scheduled for publi- 
cation in March, but the administration de- 
layed it for a review of classified 
information, and it is now due for release 
on June 23rd. Although last-ditch legal ef- 
forts to block it (and to take away Mr Bol- 
ton’s earnings from it) continue, details of 
the juiciest bits from its 592 pages have 
been emerging in the press from advance 
copies, and the author has started to give 
interviews about it. Three main embarrass- 
ments for Mr Trump stand out. 

The first is on the probity of his policy. 
The heart of the allegation that led the 
House of Representatives to impeach the 
president was that he sought to put pres- 
Sure on Ukraine not in America’s national 
interest but in order to boost his own re- 
election chances, by trying to extract dirt 
on his Democratic opponent, Joe Biden. Mr 
Bolton portrays this as part of a pattern. In 
particular, he says, Mr Trump asked China’s 
president, Xi Jinping, to help him win a 
second term. When the two presidents met 
on the sidelines of aG20 summit in Tokyoa 
year ago, Mr Trump “stressed the impor- 
tance of farmers, and increased Chinese 
purchases of soybeans and wheat in the 
electoral outcome.” 

Humouring authoritarian leaders (Mr 
Xi, Vladimir Putin of Russia, Turkey’s Re- 
cep Tayyip Erdogan) is also a pattern for Mr 
Trump, according to his former national 
security adviser. At the same meeting in 
Tokyo Mr Xi defended his mass detention 
of Uighurs in Xinjiang. Mr Bolton recounts 
that Mr Trump told Mr Xi that he thought it 
was “exactly the right thing to do” and he 
should go ahead with building the camps. 

The second embarrassment for Mr 
Trump comes from anecdotes about his ig- 


norance. The president is described as 
“stunningly uninformed” on how to run 
the government. He asks if Finland is part 
of Russia. At one point, ina meeting in May 
2018 with Britain’s then prime minister, 
Theresa May, he seemed unaware that Brit- 
ain was a nuclear power. 

Third, Mr Bolton’s book adds colourful 
details to previous accounts of back-stab- 
bing within the administration and criti- 
cism of the president by senior officials. Mr 
Bolton describes one incident during the 
Summit in Singapore with North Korea's 
leader, Kim Jong Un, when Mr Trump said 
he would seek Senate approval of any nuc- 
lear deal. Mike Pompeo, the secretary of 
State, passed Mr Bolton a note saying that 
he (meaning Mr Trump) “is so full of shit”. 

Mr Bolton is clearly no stylist, but he 
was a prodigious note-taker, which lends 
credibility to his account. Democrats will 
remain angry that he has chosen to spill 
these beans in a memoir rather than to 
Congress: he refused to testify in the House 
impeachment hearings. Would it have 
made a difference to the outcome had he 
done so? Mr Bolton thinks not (though he 
accuses House Democrats of “impeach- 
ment malpractice”, in failing to pursue the 
broader pattern of abuse of presidential 
power). He is probably right, given the 
near-unanimous backing for Mr Trump 
among Senate Republicans that ensured 
the president’s acquittal. 

The bigger question now is whether Mr 
Bolton's book will make a difference in No- 
vember. That is the real reason Mr Trump is 
furious. Unlike Mr Mattis, Mr Bolton, once 
a Fox News pundit, has been a darling of 
the right. And, as he writes, “I am hard 
pressed to identify any significant Trump 
decision during my tenure that wasn't dri- 
ven by re-election calculations.” @ 





~ 


The man with the notepad 








The Economist June 20th 2020 


Bill de Blasio 


How’s he doin’? 


NEW YORK 
New Yorkers turn their backs on their 
mayor 


D KOCH, New York City’s mayor in the 
and 1980s, used to ask New York- 
ers, “How’m I doin’?” to cheers and jeers. 
Bill de Blasio, the city’s mayor since 2014, 
does notask the question. At the recent me- 
morial service in Brooklyn for George 
Floyd, the unarmed man who died under 
the knee of a Minneapolis police officer, Mr 
de Blasio heard loud and clear what many 
New Yorkers think of his unwavering sup- 
port for the police. People there booed and 
turned their backs on the mayor during his 
Short address. Some chanted “Resign!” 
Those booing had been his base, the very 
people who got him elected in 2013. 

His mixed-race family attracted black 
and white New Yorkers alike. His son 
Dante, then 15 and sporting an impressive 
Afro, was the star of his campaign adver- 
tisements. Borrowing from Dickens's “A 
Tale of Two Cities”, a book about the French 
revolution, to describe the gap between the 
Big Apple’s rich and poor, Mr de Blasio 
touched on something that his predeces- 
sor, Mike Bloomberg, an otherwise suc- 
cessful manager, had neglected. 

The message resonated. His promise to 
reform the New York Police Department 
(NYPD), ending stop-and-frisk, a policy 
that disproportionately targeted black and 
brown people, was applauded. But, six 
years on, mothers still fear for their black 
sons and the gap between the two New 
Yorks has not narrowed. 

When videos recently surfaced of ag- 
gressive police behaviour towards peaceful 
protesters, the mayor still defended the 
cops. Police appeared to use batons liberal- 
ly and a police suv drove into a crowd. Mr 
de Blasio did little to quell tensions. 

This is a 180-degree turn from the re- 
former who once spoke with emotion 
about his worries for his black son at the 
hands of police. Two events might explain 
this shift. In 2014 Eric Garner, an unarmed 
man, was killed by a police officer using a 
banned chokehold. Protests erupted when 
a grand jury refused to bring charges 
against the officer. A few weeks later two 
officers were fatally ambushed by a de- 
ranged man seeking revenge for Mr Gar- 
ner’s death. The rank and file felt besieged. 
Many turned their backs on the mayor at 
the funeral of one of the murdered officers. 
Then he was booed at a police graduation. 
After that, he grew closer to the NYPD’s 
leadership. It took nearly five years to dis- 
miss the officer who killed Mr Garner. 


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The Economist June 20th 2020 





Better late than never 


His tone-deaf support of over-aggres- 
sive police action appalled his staff and for- 
mer advisers. More than 1,000 of them 
signed an open letter calling on Mr de Bla- 
sio to reform the NYPD and divert $1bn from 
its budget towards social services. Hun- 
dreds of former and current staff marched 
from City Hall in protest against his han- 
dling of the unrest. A city councillor in- 
tends to call for a vote of no confidence. 

At times, the mayor’s focus has seemed 
to be elsewhere. He tried to launch a na- 
tional progressive movement in 2015 and 
ran for president last year. This national 
barnstorming distracted from his work at 
City Hall. He is chronically late to events 
and meetings. 

His handling of the covid-19 crisis has 
not helped him. Some think he should have 
Shut down the city sooner. More than 
20,000 New Yorkers have died. Nor has he 
prepared the city for a recession. Jonas 
Shaende of the Fiscal Policy Institute, a lo- 
cal think-tank, says he should have estab- 
lished a rainy-day fund. The economy’s 
contraction has blown a $9.7bn hole in the 
budget. Deep cuts are inevitable. Dan Doc- 
toroff, Mr Bloomberg’s former deputy 
mayor, believes New York will have to 
maintain quality of life to avoid going into 
a “vicious cycle of decline like we had inthe 
‘70s. That won't be easy. 

Mr de Blasio has had successes. The 
mayors roll-out of universal nursery 
schooling has been copied all over the 
country. He has kept total crime down. He 
passed paid sick leave. He introduced an ID 
card for the city’s many undocumented 1m- 
migrants. Now he is belatedly shifting 
NYPD funding to youth programmes. And 
the NYPD has disbanded plainclothes units 
involved in many shootings. But his han- 
dling of the protests and the pandemic will 
taint his legacy. 


Maine politics 


The race of the 
long driveways 


Democrats have the last New England 
Republican in Congress in their sights 


HEN CONGRESS convened in January 

VV 2001, 11 of the 35 senators and repre- 
sentatives from New England were Repub- 
licans. That was not unusual: just as the 
South is ancestrally Democratic, much of 
New England is ancestrally Republican. 
Vermont has only ever elected one Demo- 
cratic senator, Patrick Leahy, and between 
1850 and 2007 elected just two Democratic 
representatives, who both served only one 
term (Bernie Sanders caucuses with Demo- 
crats but is an independent). The first Afri- 
can-American to win popular election to 
the Senate was Edward Brooke, a Republi- 
can from Massachusetts. The first woman 
to serve in both houses of Congress was 
Margaret Smith, a Republican from Maine. 

Today, New England Republicans in 
Congress are rarer than white southern 
Democrats. Just one remains: Susan Col- 
lins, Maine’s senior senator. Up for re-elec- 
tion in November, she trails her presump- 
tive opponent, Sara Gideon, speaker of the 
Maine House of Representatives, by nine 
points, according to a poll last month. 
Democrats need to flip five seats—assum- 
ing Doug Jones, a Democrat from Alabama, 
loses—to take control of the Senate. Many 
see Ms Collins as among the most vulner- 
able incumbents. They are in fora fight. 

First, reasons for Democratic optimism. 
Ms Gideon is telegenic and a prodigious 
fundraiser, raking in more this cycle than 
Ms Collins. Politicos praise her for the 
same Set of qualities Ms Collins possesses: 
toughness, preparation and work ethic. 
ActBlue, a liberal fundraising platform, 
amassed a $4m war chest for Ms Gideon, 
much of it before she declared herself a 
candidate, from donors angry at Ms Col- 
lins’s support for Brett Kavanaugh’s nomi- 
nation to the Supreme Court. Although Ms 
Gideon has yet to clinch the nomination 
officially, the Democrats’ Senate campaign 
arm has endorsed her (her progressive op- 
ponent, Betsy Sweet, calls herself an “intu- 
itive healer’, and has worked as a medium, 
connecting the living to the dead). 

At the same time, Ms Collins’s indepen- 
dent reputation has been dented. “She 
Speaks earnestly and slowly, and makes 
you feel like she’s weighing both sides,’ 
says Carolyn May, a longtime resident of 
Waldo County who has previously voted 
for Ms Collins. “But if you watch her votes, 
its been more and more following the 
party line...she’s not the person that Maine 
needs.” Indeed, her voting record aligns 


United States 23 


more closely with Donald Trump's prefer- 
ences than with those of any other presi- 
dent during her time in office. That has not 
helped her approval ratings. 

Democrats feel they have the wind at 
their backs. Mr Trump trails Joe Biden in 
State polls, and in 2018 Democrats flipped 
both the swing second congressional dis- 
trict, with Jared Golden, and the governor's 
mansion, with Janet Mills. Ms Mills did 
well with the same sort of “long-driveway 
Democrats” that Ms Gideon will need to 
win—meaning often independent-mind- 
ed, well-off voters in the wealthy southern 
coastal towns near Portland, Maine's big- 
gest city. Ms Mills ran up sizeable margins 
in the state’s populous southern counties, 
while performing respectably in the more 
conservative north. 

Ms Gideon may find that a hard path to 
follow. Ms Mills was running against a 
businessman from southern Maine who 
had never held office before, while she her- 
self has deep roots in rural Maine. Ms Gide- 
on, who did not move to the state until 
2004, 1S a candidate with impressive cre- 
dentials from a rich town in Maine’s south, 
and talks like it; Ms Mills has an unaffected 
demeanour anda chewy Maine accent. 

Ms Collins, as one of her supporters put 
it, is “a daughter of northern Maine’, raised 
in the small town of Caribou. She remainsa 
familiar presence at small-town parades 
and high-school basketball games, and has 
a sterling reputation for constituent ser- 
vice and bringing money back to the state. 
None of which is to say she will win. Per- 
haps Ms Gideon will run up even better 
numbers down south than Ms Mills. Per- 
haps she will persuade enough voters from 
the rural white second district to break 
with their longtime senator. But it’s a nar- 
row road tothedeep north. @ 


a = a 





Collins still has street cred 


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24 United States 


The Economist June 20th 2020 


Lexington | A shovel-ready project 


Thomas Jefferson would be proud: Americans have rediscovered vegetable-growing 





ROM A SELFISH perspective, this hot, quarrelsome month has 

brought two great joys to your columnist. It gave him his first 
opportunity to take part in American democracy, in the form of a 
local election for which his foreign citizenship was no bar. (The 
contest was also fiery, of which more shortly.) And it was the first 
June in which he has overseen a vegetable garden ripening at New 
World pace. Zucchini seedlings planted in late May provided their 
first sleek squashes to Lexington’s table this week. Tomato seed- 
lings that went in at the same time are now heavy with green fruit. 
This is nothing like gardening in cloudy England. 

Your columnist is not alone in growing more veg this year. The 
coronavirus lockdown has inspired a surge in gardening not seen 
Since the second world war. Seed firms have struggled to Keep up. 
Even the144-year-old Burpee company, a fabled name in American 
horticulture, briefly stopped taking individual orders. On Memo- 
rial Day, a traditional marker for planting tomatoes along the east 
coast, many garden centres had no seedlings available. “In 40 years 
in this business, I’ve never seen anything like it,’ marvelled Ian 
Baldwin, a Sacramento-based expert (who kindly shared a picture 
of his enviable potato bed). 

European countries have seen a similar surge, presumably for 
much the same pandemic-related reasons: anxiety about food se- 
curity, combined with an aversion to going shopping and a glut of 
enforced time at home. Yet America’s enthusiasm is more remark- 
able for coming off a lower base. Around a third of British house- 
holds grew at least some of their own food before the pandemic. 
Even after a significant increase over the past decade, only a quar- 
ter of American ones did. And they have nothing like Britain’s na- 
tional gardening culture, including popular Tv shows and celebri- 
ty growers, to encourage them. Michelle Obama’s valiant effort to 
relaunch the White House's kitchen garden was chiefly remark- 
able for its novelty. This contrast points to a few broader American 
peculiarities—which may now be diminishing. 

Like so much in popular culture, America’s rejection of garden- 
ing has its roots in the long post-war boom. Where frugal Britons 
retained some of their wartime allotments, America’s Victory Gar- 
dens were abandoned with the gusto of acountry remaking the fu- 
ture in a way that left no place for composting and hoeing peas. 


In the country’s vast new suburbs, a pristine lawn, visible 
through a picket fence, was a statement of middle-class belonging. 
Zoning laws often permitted no deviation from it—so that verdant 
but sterile suburban yards, drenched in chemicals, soon covered 
America. Refrigerators and frozen food meanwhile revolutionised 
the way Americans fed themselves. Between 1945 and 1949 they 
bought 20m fridges—and filled them with precooked meals, such 
as the Tv Dinners that Ronald and Nancy Reagan loved. 

To this day vegetable patches, clotheslines and other non-lawn 
deviances are often forbidden in the suburbs. Yet America is vast 
and contradictory. The 1950s also saw J.I. Rodale’s pioneering ex- 
periments in organic farming. The 1970s brought a revival of com- 
munity gardens in many cities. America’s continental scale (it has 
13 growing zones to Britain's four) kept regional horticultural tradi- 
tions alive. And over the past decade these tendrils have become 
interwoven in the many gardening blogs, chat-rooms and You- 
Tube stars that have blossomed online. If America still lacks a na- 
tional gardening culture, it has a diverse and organic one. 

This regrowth began during the recession of 2007-09, when 
millions turned to veg-growing to save money. Those most scarred 
by that crisis—millennials, who are now less likely to own any sort 
of property than their parents—have tended to stick with it. Plum- 
meting trust in the food industry and rising interest in organic 
food have supported this change. So too, industry surveys suggest, 
has rising interest in growing marijuana. 

The trend has almost inevitably been politicised. Egged on by 
the food industry, the right lambasted Mrs Obama's garden as elit- 
ist and anti-business. In an attack on the former first lady’s appear- 
ance, Rush Limbaugh also accused her of hypocrisy: “If we are sup- 
posed to eat roots, berries and tree bark, show us how.” 

In Donald Trump, who so disdains greens that the White House 
physician resorted to smuggling cauliflower into his mashed pota- 
toes, the reactionaries have founda champion. His administration 
has reversed the few gains made by the campaign for better nutri- 
tion that Mrs Obama's garden was meant to spearhead. The town- 
ship election that Lexington has just voted in also featured a jum- 
bled echo of this politics. It pitted left-wing environmentalists, 
eager tocurb the use of garden chemicals, against a more business- 
like group, concerned about the effect of such nannying greenery 
on local property prices. 

To a European transplant, the notion of vegetable gardening 
having any kind of partisan hue is nuts. Yet Lexington’s experience 
suggests that such politicking will not stop its resurgence. He ex- 
panded his vegetable plot—to the sunny front of his house—not 
because of the pandemic but after he finally mustered the courage 
to risk his neighbours’ wrath. Far from objecting, however, several 
have constructed raised beds of their own. One neighbour, a dis- 
tinguished law professor, even followed your columnist into the 
local dumpsters in search of the necessary planks. 


America digs digging 

This has led to an intense neighbourly exchange of seedlings, ob- 
servations and advice. (And commiseration, after the rapacious 
chipmunks strike.) Great as itis to eata home-grown squash, culti- 
vating vegetables in a modern economy is fundamentally about 
such things, not producing calories. Itis a useful activity, a blissful 
therapy, an adjunct to community. It is liberating and equalising. 
No wonder Thomas Jefferson ranked his best horticultural innova- 
tions alongside the Declaration of Independence. In returning to 
veg-growing, America is rediscovering its better self. @ 


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Leaving lockdowns 


MEXICO CITY 


Mexico’s failures illustrate why Latin America is now the centre of the pandemic 


N A SPRING afternoon in Mexicali, in 
O northern Mexico, Erick Mercado pon- 
dered what was coming. The private His- 
panic American Hospital, where he runs 
the accident-and-emergency service, had 
cancelled all elective surgery and made 
plans to seal off the second floor. In half an 
hour, he explained, the governor of Baja 
California would confirm the state’s first 
coronavirus cases. People with flu-like 
symptoms, Dr Mercado predicted, would 
“go into a panic” and rush to hospitals for 
testing. Sure enough, a queue appeared in 
the car park by nightfall. 

Three months later, Dr Mercado and his 
hospital are at breaking point. For every co- 
vid-19 patient to whom he can offer a bed, 
he must turn away five. More than 90% of 
the city’s hospital beds are taken, and the 
number of registered deaths nearly tripled 
to 660 in the first half of June. Dr Mercado’s 
days are filled with suffering patients, ex- 
hausted staff and visitors who cannot ap- 
proach loved ones. Most distressing ofall is 
knowing that “people who do not comply” 


with government orders to stay at home, 
wear masks and keep social distance have 
made the pandemic worse. 

His frustration is provoked by the mess- 
iness of Mexico’s response to covid-19. The 
government shut down the formal part of 
the economy on March 30th, when fewer 
than1,000 cases had been registered. But— 
unlike in richer countries—its lockdown 
order failed to contain the outbreak (see 
chart on next page). Mexico has 159,793 
confirmed cases and 19,080 deaths. Al- 
though the number of new cases nationally 
has lately fallen, it is still rising in 27 of the 
32 States. Yet with covid-19 on the rampage, 
the country is easing its controls. 

The rest of Latin America shares its 
plight. The region is reporting more cases 
each day than Europe did during its co- 








26 Uruguay's pandemic success 


28 Bello: Trump's pick to lead the IDB 


vid-19 peak in April. By some measures it is 
the world’s most urbanised region, which 
may help explain the virus’s spread. Gov- 
ernments’ responses have varied greatly. 
Brazil’s President Jair Bolsonaro has been 
cavalier, dismissing covid-19 as “sniffles” 
and breaching his own health ministry’s 
social-distancing advice. Nicaragua’s Dan- 
iel Ortega imposed no lockdown. Govern- 
ments in Peru, Argentina and elsewhere 
acted early and sternly, using the police to 
enforce quarantine orders. Yet with few ex- 
ceptions (see next story), the spread of the 
virus has been swift. 

Even where the rules are strict, many 
people have not obeyed. The rich have ad- 
hered to lockdowns more than the poor. 
Many informal workers—street vendors, 
cleaners and the like—must work to eat. 
Few Latin American countries have Euro- 
pean-style safety nets. Many have none- 
theless provided emergency aid. In Brazil, 
El Salvador and elsewhere beneficiaries 
flocked to cashpoints, potentially spread- 
ing the virus. Inaregion where trust in gov- 
ernment is low, citizens are detached from 
the state “not just legally, but emotionally 
and cognitively”, says Hugo Nopo, a Peru- 
vian economist. That makes them less in- 
clined to listen to pandemic pleas from of- 
ficialdom. The resignation, firing or arrest 
of six Latin American health ministers 
since March is unlikely to have bolstered 
citizens’ confidence in governments. 

Despite the region’s leaky lockdowns, 


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26 The Americas 


> its economy will shrink by 7.2% this year, 
more than anywhere else, predicts the 
World Bank. Small wonder that govern- 
ments besides Mexico's are contemplating 
ending lockdowns before they have tamed 
the disease. They are taking a gamble. 

A quasi-quarantine is better than none. 
Andrés Manuel Lopez Obrador, Mexico's 
president, has said in private meetings that 
his priority is to avoid the apocalypse that 
struck Guayaquil, Ecuador’s largest city, 
where corpses lay in the streets in April. 
Mexico’s quarantine achieved that, buying 
time for the government to find extra beds, 
doctors and ventilators, educate citizens 
and review research about how to halt the 
virus. It was loose by design, avoiding “au- 
thoritarian” restrictions on movement and 
allowing workers in informal jobs to con- 
tinue to practise their trades. Nonetheless, 
the government expects up to 10m people 
to fall below its poverty line this year. 

In Iztapalapa, a suburb of Mexico City 
that has the country’s highest confirmed 
infection rate, both the lockdown and the 
government that ordered it seem distant. 
On Callejon 57, a tiny colourful street, life 
carries on as normal. Although Mexican 
media dubbed it “Covid Alley” after it saw 
45 deaths in three months, many residents 
downplay the threat. One man says the 
powers that be want to kill off pensioners. 
Another, whose uncle died recently (“not 
from covid-19’), thinks the government is 
exaggerating to keep the poor under its 
thumb. Others doubt the virus is real. Yet 
most residents make some effort to protect 
themselves and others. “When the deaths 
Started the masks came out,’ says Miguel 
Contreras from behind a sheet of plastic at 
his hole-in-the-wall convenience store. 

Joaquin Reyes recalls that when his 90- 
year-old grandmother died, he could say 
farewell only by phone, through a doctor. 
The doctor said covid-19 “probably” killed 
her, though the death certificate does not 
mention it. Mr Reyes, who wears a mask as 
he flattens chicken breasts at the stall out- 
side his house on Callejon 57, is unsure. His 
till, a margarine tub packed with coins, is 
filled with water to ward off germs. This re- 
assures customers, he explains. As ever, he 
is working long hours and resting only on 
Sundays. “If I had money, I would stay in 
my house all day,’ he says. 

Covid-19’s devastation is greater than 
the government admits. Among the 25 
countries with most cases, none tests few- 
er people than Mexico as a share of popula- 
tion. Two in five tests are positive, a sign 
that the outbreak is being badly under- 
counted. An analysis of death certificates 
shows that between April ist and June 7th 
Mexico City had 17,000 more deaths than it 


Correction: In “Contenders for a cracked crown” 
(June 6th) we described Erin O'Toole as a former 
air-force helicopter pilot. He was a navigator. Sorry. 


normally does over that period. This sug- 
gests a toll nearly four times the govern- 
ment’s count. The capital’s excess deaths 
are nearing New York’s 25,000, even 
though its people are on average younger. 

Despite this, Mexico’s government is 
desperate to end lockdown. It expects the 
pandemic to peak this month. The govern- 
ment has introduced a traffic-light system, 
which encourages states that are taming 
the virus ease lockdowns. Just one state 
qualified for any colour other than red. But 
the government tweaked its criteria so that 
16 could begin to reopen on June15th. Mexi- 
co City, which remains red, is starting to 
reopen anyway. 

Other countries that left lockdowns pre- 
maturely have suffered. Guatemala and 
Venezuela have tried alternating between 
tough and loose regimes, only to find that 
cases rise after streets fill up during lax 
phases. Panama City and Santiago, Chile’s 
capital, have reinforced lockdowns after 
authorities declared victory too early. Chile 
now has the highest confirmed infection 
rate of any non-tiny country. 

Even so, many countries, suffering 
lockdown fatigue along with economic 
pain, are moving towards gradual easing. 
Bolivia, Colombia and Honduras, whose 
president, Juan Orlando Hernandez, was 
hospitalised after testing positive for the 
virus, plan to phase out their lockdowns 
this month. Governments hope thereby to 
Support their economies. They run the risk 
of boosting the virus, too. 


ie 

The high cost of roaming 

Covid-19, new confirmed cases per 100,000 people 
2020, seven-day moving average 


Mexico City 

Lockdown easing — 20 
Ponca down began June 15th 10 
on Mar 30th i 


1 10 20 30 40 50 60 70 80 
Days since start of lockdown 














Lima, Peru Change in recording of tests 
| 40 
\ 20 
Restrictions 
Mar 16th largely in place 0 


(10 20 Oe o 40m 150060) 70n c0 


Madrid, Spain 
40 





20 


Lockdown easing 
began May 25th 


Mar 14th 






1 O20 50 408 SO C0 Cec 


Source: Government statistics 


The Economist June 20th 2020 


Uruguay 


Standing apart 


BUENOS AIRES 
How a former buffer state is 
controlling covid-19 


ETWEEN TAKING Calls on his radio show, 

Horacio Abadie explains to a journalist 
Uruguay's success in curbing the spread of 
covid-19. Rather than locking people down, 
the government trusted them, he says. And 
people behaved responsibly. “Mutual trust 
has us controlling the virus.” 

By June 18th Uruguay had reported 849 
confirmed cases and 24 deaths from co- 
vid-19, the lowest number asa share of pop- 
ulation of any country in South America. 
Uruguay has administered 55,215 tests, are- 
gional record. 

Luis Lacalle Pou, the centre-right presi- 
dent, was swift but not strict. On March13th 
he declared an emergency and shut the 
borders. Like the populist leaders of Brazil 
and Mexico, he is at pains to shield the 
economy. Unlike them, he does not make 
light of the disease. “It was such a surprise 
to see a president listen to a doctor, or a 
mathematician, digest the advice, then 
communicate a message to the public free 
of any politics,’ says Eduardo Savio, an epi- 
demiologist who advised the government. 

The government calls its policy libertad 
responsable (responsible liberty). It shut 
down schools, cinemas and shopping 
malls. It urged people to work from home, 
wear face masks and keep their distance 
from each other, but did not confine them 
to their houses. Mr Lacalle Pou “was not go- 
ing to imprison people’, says an adviser. 

They seem to be paying heed. Alberto, a 
pensioner, wears a face mask as he jogs on 
the beach in Montevideo, the capital, and 
does not linger to sunbathe. “The govern- 
ment trusts me to behave, and I trust the 
government to look after me,’ he says. 

Alberto is among the 14% of Uru- 
guayans older than 65, the largest share in 
the Americas. That should make the coun- 
try more vulnerable to the pandemic’s rav- 
ages, but its advantages matter more. They 
have little to do with its new president. 

Montevideo, which has 1.4m people, 
two-fifths of Uruguay’s population, is the 
only largish city. It has no metro. Its net- 
work of buses, on which the virus can easi- 
ly spread, is small. Uruguay’s century-old 
welfare state, the first in Latin America, 
created “confidence that the state looks 
after you”, says Adolfo Garcé, a political an- 
alyst. Free, reasonably good health care is 
available to everyone. Three-quarters of 
workers have formal jobs, well above the 
regional norm. 


In a poll by Latinobarometro in 2018, >> 


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28 The Americas 


> 39% of respondents in Uruguay said they 
trusted the government, the highest share 
in Latin America. When the president en- 
lists them to fight an emergency, they are 
disposed to listen. Mr Lacalle Pou won the 
election in November by less than two per- 
centage points, but 77% of Uruguayans 
support his handling of the pandemic. 

The president campaigned as a reform- 
er of the welfare state, the cost of which has 
led to large budget deficits. He promised to 
Slash the bureaucracy while maintaining 
the level of service it delivers. Heimposeda 
temporary tax increase on public-sector 


employees, including himself, during the 
pandemic. The $12m in extra revenue is to 
be spent on boosting the economy. He is 
pressing ahead with an omnibus “law of 
urgency’, which has 476 measures to 
shrink the government payroll, strengthen 
the police, reform education and weaken 
trade unions. On June 5th the Senate reas- 
sembled to debate and then approve it. The 
opposition called the rush to pass it an 
“abuse of power”. 

The trust Mr Lacalle Pou enjoys may 
drop if the recession caused by covid-19 is 
long and deep. The IMF expects the econ- 


Breaking a gentlemen's agreement 


A gringo takeover bid for a Latin American development bank 


INCE IT was founded in 1959, the Inter- 
American Development Bank (IDB) 
has had just four presidents: a Chilean, a 

Mexican, a Uruguayan and, since 2005, 
Luis Alberto Moreno, a Colombian. 
Under the gentlemen's agreement by 
which it was founded, Latin America has 
the presidency and asmall majority of 
the capital while the United States has 
the number-two job and some informal 
vetoes over how the bank is run. The IDB 
has not been free of the faults of such 
institutions, such as bureaucracy anda 
degree of cronyism, but it has played an 
important role in the region. It lends 
around $12bn a year for infrastructure, 
health, education and so on, does some 
useful research and advises govern- 
ments. It has also been a channel of 
communication between the two halves 
of the Americas. 

Donald Trump doesn't believe in 
gentlemen's agreements, and his admin- 
istration this week broke this one. The 
Treasury Department named Mauricio 
Claver-Carone, the top official for Latin 
America at the National Security Council 
(NSC), as its candidate to replace Mr 
Moreno, who is due to step down in 
September. Mr Claver-Carone, a Cuban- 
American, is technically qualified for the 
post. He has been an adviser to the Trea- 
Sury and a representative to the IMF, and 
was involved in the Trump administra- 
tion’s initiatives on development f- 
nance. He has told interlocutors that he 
would serve only one term at the IDB, 
would bring fresh ideas and would be 
better placed than a Latin American to 
get the Treasury's crucial support fora 
capital increase that would give the bank 
resources to mitigate the covid-19 slump 
in the region. These are things that many 
in Latin America might welcome. 

But Mr Claver-Carone is a contro- 





versial choice, and not just because his 

- nomination breaks with tradition. At the 
_NSChe has been the chief architect of Mr 
_ Trump’s Venezuela policy, which has 

- failed in its aim of getting rid of the dic- 


tatorship of Nicolas Maduro. “He’s a guy 


- who comes with very Miami-type baggage, 


adversarial to Cuba and Venezuela and 
representing a conservative alliance,’ says 
a Latin American diplomat. “He would 


_ bring ideology directly into the bank.” Mr 
_ Claver-Carone walked out of the inaugura- 


tion of Argentina's president, Alberto 


_ Fernandez, in December because of the 
_ presence of a Venezuelan minister. Many 


who have dealt with him describe him as 


_ arrogant and confrontational. 


Given the Trump administration's cold 


War against China, Mr Claver-Carone’s 
- appointment as head of the IDB might 


force Latin America to choose between the 
two countries, which the region is reluc- 


tant to do. Although China is granting 


fewer loans to Latin America than it did 
recently, it remains one of the region’s 


- most important trade partners. The Trump 
administration was furious with Mr More- 





The Economist June 20th 2020 


omy to shrink by 3% this year, less than the 
regional average but painful enough. 

The president is putting Uruguay back 
to work. Nine-tenths of businesses have re- 
opened. On June ist the government began 
reopening schools, with sample testing of 
teachers and students. If that reveals an 
outbreak, they will shut again. “Uruguay 
looks like the exception in Latin America,’ 
with an economy that can rebound from 
the pandemic, says Aldo Lema, an econo- 
mist. If it can contain covid-19 at the same 
time, its neighbours will look to the one- 
time buffer state forlessons. @ 





_ no for agreeing to hold the bank’s annual 


meeting in China in 2019 (though in the 
event it was delayed and moved to Ecua- 
dor because of a row over who represent- 
ed Venezuela). Mr Claver-Carone has his 
own animus against Mr Moreno, who 
vetoed his appointment as the bank's 
vice-president. 

For Latin America the loss of the IDB 
presidency would bea big diplomatic 
defeat, reflecting the region’s weakness 
and ideological division. Its leaders area 
generally unimpressive bunch. They 
have failed to unite behind a candidate of 
their own. Diplomats expected the job to 
go either to Brazil or to Argentina. Jair 
Bolsonaro’s government in Brazil infor- 
mally canvassed support for Rodrigo 
Xavier, an experienced banker. Argenti- 
na’s putative candidate, Gustavo Béliz, is 
a competent former IDB Official, but its 
centre-left government has few allies in 
the region. Brazil looks likely to back Mr 
Claver-Carone, mainly because Mr Bolso- 
naro has aligned himself closely with Mr 
Trump. Other smaller countries may, too, 
because they are desperate for money. 

The new president must secure a 
double majority, of countries repre- 
senting 50% of the IDB’s shares (the 
United States has 30% and Brazil 1%) and 
separately of the 28 members in the 
Americas. That may yet bea problem for 
Mr Claver-Carone. 

The biggest reason to oppose his 
nomination is that he represents a polar- 
ising administration that may well lose 
an election in November, making him 
“the earliest lame duck in history”, asa 
South American official puts it. The 
sensible course would be to extend Mr 
Moreno’s term until next year, both to 
give time for other candidates to emerge 
and to see whether Mr Claver-Carone 


| really represents the United States. 


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Death valley 


India and China have their first deadly clash in 45 years 


HE TWO armies each had machineguns, 
Tartittery and tanks to the rear. But they 
wielded only sticks and stones at the front, 
as night fell on June 15th. That was deadly 
enough. When the brawl ended, and the 
last rocks had been thrown, at least 20 Ind1- 
an troops lay dead or dying in the pictur- 
esque Galwan valley, high in the moun- 
tains of Ladakh. Chinese casualties are 
unknown. These were the first combat 
deaths on the border between India and 
China in 45 years, ending an era in which 
Asia's two largest powers had managed 
their differences without bloodshed. 

The Indian and Chinese armies had 
been locked in a stand-off at three sites 
along their disputed border, known as the 
Line of Actual Control (LAC), since May. 
China’s People’s Liberation Army (PLA) 
grabbed 40 to 60 square kilometres of terri- 
tory that India considers to be its own, esti- 
mates Lieut-General H.S. Panag, a former 
head of the Indian army’s northern com- 





mand, including areas it had never previ- 
ously contested. Both sides moved thou- 
sands of troops and heavy weapons 
towards the border, and brawls erupted 
twice in May. 








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Stand-off locations 


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“Line of contro 
== “Line of actual control” 








30 Etiquette for civil servants 





31 Singapore's migrants get more room 
31 North Korea's cry for attention 


32 Banyan: racism in Australia 


India’s government played down the 
crisis, eager to avoid giving the impression 
that it had been caught napping—and 
mindful that a nationalist backlash would 
make it harder to defuse the situation. On 
June 6th both sides agreed to “disengage” at 
two of the three sites, including the Galwan 
valley. Talks had been “very fruitful”, en- 
thused General M.M. Naravane, India’s 
army chief, on June 13th. 

Not fruitful enough, it would seem. Ac- 
cording to Indian press accounts, an argu- 
ment developed after an Indian patrol tried 
to dislodge a Chinese position on the south 
bank of the Galwan river, an area that was 
supposed to be a buffer zone. China says 
that India “twice crossed the border line for 
illegal activities and provoked and attacked 
Chinese personnel”. On June 15th the PLA 
launched what India called a “premedi- 
tated and planned” attack with rocks and 
nail-studded clubs, during which Indian 
troops fell and were pushed down a steep 
slope into the river below. Some were beat- 
en to death; others died of hypothermia. 

China’s state-run media largely ignored 
the clashes and the PLa did not give details 
of its casualties, though Narendra Modi, 
India’s prime minister, said on June 17th 
that “our soldiers died having battled and 
killed the enemy.’ India acknowledges that 
over 20 of its own soldiers lost their lives, 
with others thought to be missing. But de- 


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30. =©Asia 


> spite Mr Modis threat ofa “befitting reply if 
antagonised”, neither side seems keen to 
escalate matters. On the same day, both 
countries agreed to press ahead with their 
earlier disengagement agreement. 

The immediate cause of the current cri- 
Sis seems to have been India’s build-up of 
infrastructure in eastern Ladakh, includ- 
ing a key north-south road, making it easi- 
er to move troops and redressing China’s 
advantage in logistics. “What we're seeing 
right now is the friction of both sides ad- 
justing to a more capable and more re- 
solved Indian approach to the LAC,’ says 
Rohan Mukherjee of Yale-NuUsS College. But 
the two countries have also been carried to 
this point by wider geopolitical currents. 

Though India and China have been ri- 
vals for a half-century—the PLA thumped 
India’s army in a brief border war in 1962— 
their rivalry has grown more intense over 
the past decade. The border has turned 
stormier, with a 73-day stand-off occurring 
on the edge of Bhutan in 2017. India is anx- 
ious about China’s growing economic and 
political clout on India’s periphery—in 
Pakistan, Nepal, Bhutan, Bangladesh and 
Sri Lanka—and about the influx of Chinese 
warships into the Indian Ocean. 

In response, successive Indian govern- 
ments have tilted closer to America, with 
which India signed a $3.5bn arms deal in 
February, and China’s rivals in Asia, suchas 
Vietnam. A quartet of China-sceptic coun- 
tries known as the “Quad”, comprising 
America, Australia, India and Japan, now 
meet regularly. Though India is at pains to 
stress that the Quad is not an alliance, Aus- 
tralia may soon join naval exercises involv- 
ing the other three countries. 

The violent turn in the border dispute is 
likely to accelerate these trends. “We are at 
a wotrisome and extremely serious turn- 
ing-point in our relations with China,’ says 
Nirupama Rao, a former head of India’s 
diplomatic service and ambassador to Chi- 
na. She notes a “clear asymmetry of power” 
between the two countries. India is likely 
to deepen its relationship with America 
and increase its defence budget, says Mr 
Mukherjee. As both sides shift resources to 
the border, “there will be a period of adjust- 
ment in which things may be especially 
heated,” he says. 

On June 17th India was elected to a two- 
year term as a non-permanent member of 
the UN Security Council. Yet it now has its 
hands full on its own borders. On June 12th 
an Indian citizen was killed by Nepalese 
border guards, amid a separate border row 
between India and Nepal. Relations with 
Pakistan are also fraught. An Indian soldier 
was killed by Pakistani shellfire in Kashmir 
on June 14th and, the next day, two Indian 
Officials in Pakistan were allegedly abduct- 
ed and tortured by “Pakistani agencies”. 
And then more soldiers were sent tum- 
bling to their deaths by China’s troops. @ 


The Economist June 20th 2020 





Manners maketh district commissioners 


In the bureaucracies of Bangladesh and Pakistan, the Raj lives on 


CLINK OF the spoon against the side 
A of the teacup: one point deducted. 
One too many Slices of carrot on the fork: 
another two points lost. When Sarim was 
training to become a civil servant in 
Pakistan, he was graded on his table 
manners. Everyone in his class was so 
cautious during the test that they would 
barely eat, he chuckles. 

Etiquette lessons are still mandatory 
for those aspiring to become senior 
government officials in Bangladesh and 
Pakistan, although Pakistan no longer 
marks candidates down foraslip of the 
teaspoon. During six months living and 
studying at the Bangladesh Public Ad- 
ministration Training Centre (BPATC), 
future civil servants must eat with knives 
and forks, says Mehbub, a successful 
graduate. A watchful instructor is quick 
to chastise anyone who reverts to eating 
directly from the right hand, as is cus- 
tomary for most South Asians. 

The centre’s guide to etiquette in- 
cludes detailed passages on how to hold 
and use cutlery. It recommends the 
“Continental” style—cutting and eating 
each mouthful in turn, with the forkin 
the left hand, tines down—over the 
“American” practice of cutting the entire 
serving into bite-sized pieces and then 
scooping them up with the fork, tines up. 
Another section explains in depth the art 
of “managing bread and rolls”. 

Naima, a graduate of Pakistan’s Civil 
Services Academy, grew up with such 
conventions as the daughter ofa civil 
servant. But for people coming from 
other backgrounds it can bea struggle, 
she says. The weekly lessons on the 
customs of polite society, little changed 
since the colonial era, were daunting for 


her rural classmates. The BPATC'’s in- 
junctions not to dip bread in sauce and to 
stand whenever a woman comes or goes 
from the table would seem impossibly 
stuffy to most contemporary Britons. 

In India the emphasis on colonial-era 
etiquette for trainees has waned as the 
civil service has become more inclusive. 
Rich, cosmopolitan Indians have turned 
to careers in banking and business, 
“more than we have pushed them out’, 
says an Indian official who hails froma 
rural part of the state of Rajasthan. 

Centuries of formality are hard to 
Slough off, however. When posted 
abroad, the Indian official often found 
himself overdressed compared with 
Americans and Europeans. “My Pakistani 
friends were even moreso, he laughs. 
He did dispense with the formal dinner 
service, however, and dished up Rajas- 
thani thalis even to foreign guests. 

The old ways are the best ways for 
Pakistan, argues Naima. Just because the 
British introduced them does not make 
them wrong, she says. Indeed, one rea- 
son colonial habits endure in Pakistan is 
because they suit its conservative cul- 
ture, she argues. The formal etiquette 
helps the bureaucracy set itself apart, in 
her view. In hierarchical places like 
South Asia, bureaucrats are the top of the 
pile, says Ishtiag Jamil of the University 
of Bergen. Rigid decorum adds to their 
sense of importance. 

Mehbub thinks it will take “another 
hundred years” for Bangladesh’s civil 
service to lose its Britishness and be- 
come purely Bengali. He is leading the 
way, however. The head of his office, he 
sometimes wears jeans and a T-shirt to 
work: “What can I say? I'ma rebel.” 


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The Economist June 20th 2020 


Migrant workers in Singapore 


Breathing room 


SINGAPORE 
Foreign workers get roomier digs 


IGRANT WORKERS are vital to Singa- 
M pore’s economy, as they make up two- 
fifths of the labour force. But they are nota 
popular cause. The worst electoral showing 
for the ruling People’s Action Party (PAP) 
was in 2011, when the opposition put a call 
for fewer migrants at the heart of their cam- 
paign. So it is brave of the government to 
pick a fight with voters on the subject, with 
an election expected within months. 

On June ist Lawrence Wong, co-chair of 
Singapores covid-19 task-force, an- 
nounced plans to build lower-density 
dormitories for some 100,000 migrant 
workers. The new housing, he warned, 
would inevitably encroach on other resi- 
dential areas. When the government built 
workers’ dormitories in one central district 
in 2009, the PAP was subsequently 
thumped at the ballot box there. 

Its willingness to try again is born of a 
public-health worry, not a surge of munifi- 
cence. Nearly all Singapore’s 41,000 co- 
vid-i9 cases have been among migrant 
workers. A quarter of them live in dorms 
packed with as many as16 people per room. 
Regulations mandate an area of 4.5 square 
metres of living space per person, includ- 
ing shared facilities. The new dorms will 
boast a more salubrious six square metres 
each, excluding communal space, provid- 
ing fortentoaroom. 

That is a big commitment for the 
world’s most densely populated country, 


Don't stand so close to me 


bar Monaco. It is also a political risk. Mi- 
grant workers are a downtrodden lot, mak- 
ing an average of S$500 ($357) a month, 
says Debbie Fordyce of Twc2, an advocacy 
group. Most of their accommodation is 
hidden away in outlying areas. But when 
they stray into residential ones, they are of- 
ten met with suspicion and scorn. 

In the past decade, especially after a riot 
in 2013, residents have got the authorities 
to tighten surveillance over Little India, a 
district in central Singapore where100,000 
South Asian workers would gather weekly 
in pre-pandemic days to shop for groceries 
or pass the time. A member of parliament 
who described such gatherings as “walking 
time-bombs and public disorder incidents 
waiting to happen” petitioned the govern- 
ment to fence off communal areas. 

Even as it promises migrants more spa- 
cious surroundings, however, the govern- 
ment is not getting soft-hearted. As Singa- 
pore prepares for a partial exit from 
lockdown on June 19th, it has insisted that 
migrant workers, many of whom do not 
own smartphones, must install and use a 
battery-draining contact-tracing app that 
most residents have rejected, largely on 
grounds of privacy. 

But public attitudes may be softening. 
“Many Singaporeans have been coming 
forward, asking how they can help migrant 
workers through the pandemic,” says Mi- 
chael Cheah, head of HealthServe, a charity. 
Many such benefactors are younger Singa- 
poreans, he points out. 

Citizen Adventures, a group of about 
200 youth volunteers, led by Cai Yinzhou, 
befriends migrant workers. It has raised 
S$786,000 ($564,000) to help them 
through the crisis. “We don't take for grant- 
ed our relationship with the workers,” says 
Mr Cai. “But unfortunately that is not the 
case with other Singaporeans.” @ 





i“ Sz. 


te 








Asia 


Inter-Korean relations 


In the dust 


SEOUL 
North Korea blows up an empty 
building to attract attention 


S THEATRICS go, it was impeccable. 

Shortly before 3pm on June 16th, a big 
cloud of smoke billowed suddenly from 
the site of the inter-Korean liaison office in 
the North Korean border city of Kaesong. 
As the dust settled, the building and much 
of its surroundings re-emerged, reduced to 
rubble. North Korean state media trium- 
phantly reported that the office had been 
destroyed ina “terrific explosion”. 

Along with the liaison office, which 
since opening in September 2018 had oper- 
ated as ade facto embassy between the two 
Koreas, the North blew up what little was 
left of a two-year period of inter-Korean de- 
tente. The move followed a spring filled 
with several short-range-missile tests, 
weeks of lurid rhetoric against the South by 
the regime’s propaganda organs and the 
severing of communication lines with the 
South on June 9th. The regime is clearly try- 
ing to manufacture a fresh crisis. Outsiders 
have no clue as to why. 

The pretext for the demolition was that 
North Korean defectors (“human scum’, as 
the North calls them) continue to launch 
anti-regime leaflets attached to balloons 
into the North. The defectors have also sent 
over chocolate biscuits, to remind north- 
erners how much richer the capitalist, 
democratic South is, and flash drives full of 
Wikipedia pages. Kim Jong Un, North Ko- 
rea’s despot, regards both mockery and ac- 
curate information as “hostile acts”. 

To soothe tensions, the South had 
promised to stop the leaflet-launchers in 
2018. In response to the North’s threats, it 
recently tried again to crack down on the 
defector groups, outraging domestic fans 
of free speech. Even so, Mr Kim’s regime 
was not satisfied. When it comes to silenc- 
ing critics, ithas more exacting standards. 

One theory is that the North is trying to 
press its neighbour to make bigger eco- 
nomic concessions. Or perhaps it wants 
the South to coax America back to the nego- 
tiating table, giving Mr Kim another chance 
to win sanctions relief. Even before the lat- 
est escalation, inter-Korean relations had 
been in poor shape. Economic co-opera- 
tion (read: the South’s money flowing into 
the North’s coffers) between the two coun- 
tries cannot go ahead without the easing of 
sanctions, which in turn depends on pro- 
gress in talks with America aimed at re- 
moving the North’s nuclear weapons. 
These have made no headway since a sum- 


31 


mit between Donald Trump and Mr Kim >> 


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32 Asia 


> last year broke down. 

However, if extracting concessions by 
raising pressure is the strategy, the likeli- 
hood of success is low. Mr Trump, who is 
preoccupied by covid-19 and re-election, 
has paid little attention to North Korea in 
recent weeks. After the Kaesong explosion, 
America’s State Department blandly urged 
the regime to “refrain from counter-pro- 
ductive actions”. South Korea, for its part, 
Sharpened its usually conciliatory tone. A 
general blustered that North Korea would 
“pay the price” if it took further military ac- 
tion. If anything, the affair has made Moon 


A bad rap? 


Jae-in, South Korea’s president, less recep- 
tive to Mr Kim’s demands. 

Another possible motive for the North’s 
recent histrionics is domestic. The propa- 
ganda campaign that preceded the demoli- 
tion of the liaison office was spearheaded 
by Kim Yo Jong, the dictator’s younger sis- 
ter, who raged at the “rubbish-like mongrel 
dogs” who had the temerity to “fault...our 
Supreme leadership”. The regime may be 
Seeking to raise Ms Kim's profile by 
Strengthening her hardline credentials, 
reckons Andray Abrahamian of George Ma- 
son University Korea. 


Indigenous peoples’ problems show Australians are in denial about their racism 


OLICE ON HORSEBACK gathered ina 
P circle to defend the statue of Captain 
James Cook in Sydney’s Hyde Park. Aus- 
tralians inspired by American protests, 
and calling attention to the plight of their 
country’s indigenous peoples, might 
have toppled the statue. The moment 
was replete with historical irony. The 
“discoverer” of Australia met hisendona 
Hawaiian beach, at the hands of a crowd 
of angry natives. The police seemed 
determined not to letit happen to hima 
second time. 

The whole messy issue of Australia’s 
past rose up and wound itselfin knots 
around Cook's bronze form. The conser- 
vative prime minister, Scott Morrison, 
condemned the protesters. But he drewa 
distinction between Australia’s history of 
white settlement and America’s. Austra- 
lia had been “a pretty brutal place”, he 
conceded, “but there was no slavery.” 

That is some gloss to the real story of 
white settlement. Australia’s indigenous 
peoples have endured land seizures, 
massacres, servitude and, well into the 
second half of the 20th century, children 
forcibly removed by government agen- 
cies and church missions in the name of 
racial assimilation—the so-called stolen 
generations. An uproar over his com- 
ments compelled Mr Morrison to back- 
track and clarify that he had meant no 
legal slavery. To many of his govern- 
ment’s supporters, muttering over their 
barbies, the furore was political correct- 
ness gone mad. 

Nobody denies that Australia’s indig- 
enous peoples face bleak odds. Aborigi- 
nals and Torres Straits Islanders are 3% of 
the population but 27% of prisoners. 
Their life expectancy is eight years less 
than the national average. They do ter- 
ribly at school. 

But Australia has made strides to 


improve the Aboriginal condition, starting 
with a referendum in 1967 granting full 
citizens’ rights to indigenous Australians. 
In1992 a High Court case over land title 
overturned the long-held legal fiction that 
Australia had been an uninhabited terra 
nullius for the taking. And in 2008 the then 
prime minister, Kevin Rudd, formally 
apologised to the “oldest continuing cul- 
tures in human history” over the stolen 
generations and other past mistreatment. 
Mr Rudd’s and successive governments 
have committed to “closing the gap” in 
socioeconomic outcomes. 

Many Australians therefore share Mr 
Morrison's contention that Australia is not 
a fundamentally racist country but its 
opposite, a “fair” one. From this some 
conclude that Aboriginals’ remaining 
problems—the drinking, the domestic 
violence, the supposed indolence—are of 
their communities’ own making, nota 
consequence of discrimination. One 
columnist even claims that the protesters 
are “enablers for systemic and entrenched 
indigenous problems to fester”. 

In the past, bottom-up efforts by indig- 





The Economist June 20th 2020 


Kim Jong Un has been unusually absent 
from public view this year, prompting ru- 
mours about his health and speculation 
about who might succeed him. His sister 
tops the list of possible candidates. An add- 
ed bonus of the current campaign might be 
to distract from domestic economic diff- 
culties caused by North Korea's stringent 
quarantine to shield itself against covid-19 
(of which it still, fantastically, claims to 
have no cases). Whatever the motives, out- 
siders hope that when it comes to blowing 
things up, the North will continue to re- 
Strict itself to empty buildings. @ 





IM 


enous folk to improve their lot tended to 
work only if the political climate encour- 
aged it. The “Uluru statement from the 
heart” in 2017, which called for constitu- 
tional change to give indigenous Austra- 
lians aspecial voice in laws and policies 
that concerned them, was rejected by the 
ruling coalition, on the ground that the 
proposed body would constitute a third 
legislative chamber. 

That argument, Mr Rudd contends, is 
“bullshit”: the body would have had no 
authority to introduce or vote on legisla- 
tion. Rather, the rejection was a dog- 
whistle to the same kinds of voters who 
were encouraged to believe, after the 
High Court ruling on land rights, that 
Aboriginals would soon be camping in 
their back yard. Mr Morrison’s criticism 
of protesters was intended for much the 
Same audience. 

It is no surprise then that indigenous 
people believe Australia does not offer 
them a fair go. “There’s a view here that 
we re all mates,’ says Pat Anderson, an 
Aboriginal leader. “But this is a mytholo- 
gy they tell themselves.” Petty racism 
abounds. One Aussie-rules star, Adam 
Goodes, who complained when a13-year- 
old called him an ape, was booed into 
early retirement. 

Yet some think the social and political 
ground might soon shift. A younger 
generation of indigenous Australians, 
many better educated than their parents, 
is beginning to puncture the cosy self- 
image of Australia projected by the likes 
of Mr Morrison—using wit to get their 
point across. It was hardly salutary thata 
recent study concluded that three out of 
four Australians have a “racial bias” 
against Aboriginals. But it did bring 
cheer when Briggs, an indigenous rapper, 
tweeted that the fourth Australian was 
probably “conducting the survey”. 


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The South China Sea 


Identify yourself 








China is stepping up efforts to assert its authority in the South China Sea. Could 


its next move be in the skies above it? 


HE LAST time that three American air- 
T craft-carriers prowled the Pacific Ocean 
was in 2017, shortly after President Donald 
Trump had threatened to “totally destroy” 
North Korea. In mid-June a trio of carriers 
returned—the uss Ronald Reagan and uss 
Theodore Roosevelt in the Philippine Sea 
and uss Nimitz farther east. Together they 
brought more fighter jets than most coun- 
tries in Asia possess. Chinese commenta- 
tors had little doubt what the point was this 
time: to show China that despite covid-19, 
America still has muscle. 

American officials are not so explicit 
about the meaning of the exercise. But they 
are clearly disturbed by recent Chinese 
moves in the South China Sea. On April 3rd 
China’s coastguard sank a Vietnamese fish- 
ing boat near the Paracel islands (see map, 
next page). On June 1oth another one was 
rammed inthesameareabyaChinese ship. 
In April and May Chinese coastguard ves- 
sels harassed West Capella, a Malaysian 


drillship near Borneo, prompting America 
and Australia to send warships. In the 
Spratly archipelago, China’s “maritime mi- 
litia”, disguised as a fishing flotilla, has 
been swarming near Thitu, an island con- 
trolled by the Philippines but claimed by 
China. America’s secretary of state, Mike 
Pompeo, has accused China of taking ad- 
vantage of distraction caused by covid-19 to 
engage in “provocative behaviour”. 
Jostling in the South China Sea is noth- 
ing new. For decades, China and other litto- 
ral countries, including Brunei, Malaysia, 
the Philippines and Vietnam, have com- 
peted and clashed over its atolls, shoals, 
reefs and sandbars. China has largely 
emerged the victor. And despite promising 


> Also in this section 
34 Fighting the pandemic 
36 Chaguan: Why China bullies 





America in 2015 that it would not militarise 
the area, it has built ports, runways and 
bunkers in the Spratlys and installed mis- 
Siles on these island fortresses. 

Recently China has been tightening its 
grip in symbolic ways. In April it created 
two administrative districts covering the 
Spratlys and Paracels. They are under San- 
sha, a notional “city” that China estab- 
lished in 2012 as the sea’s government. It 
also named 80 new geographical features 
in the South China Sea, including 55 sub- 
merged ones. Now there is speculation that 
China may turn to the skies above. 

For a decade, Chinese leaders have 
mulled the creation of an Air Defence Iden- 
tification Zone (ADIZ) over the South China 
Sea. America was the first country to de- 
clare an ADIZ, in 1950. Fearing a surprise 
nuclear attack, it demanded that planes ap- 
proaching its airspace follow various rules, 
such as radioing their course and destina- 
tion. At least half a dozen other countries 
now also have such zones. 

China established its first ADIZ in 2013 
over the East China Sea. Controversially, it 
covered the uninhabited Senkaku islands. 
These are controlled by Japan but claimed 
by China (which calls them the Diaoyu). 
America promptly sent two bombers to fly 
through the zone without permission, to 
show it would pay no heed. But most coun- 


tries, including America, grudgingly told >» 


The Economist June 20th 2020 ex! 


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34 China 


> their civilian airlines to play safe and com- 
ply with the new rules. Chinese leaders are 
now “waiting for the right time” to declare 
plans for an ADIZ in the South China Sea, 
according to the South China Morning Post, 
a newspaper in Hong Kong. 

China’s recent moves in the South Chi- 
na Sea have fuelled concern that the time 
may be nigh. An ADIz there might be easier 
for China to monitor than the one in the 
East China Sea, says Zack Cooper of the 
American Enterprise Institute, a think- 
tank. It could use not only radars on Hai- 
nan island or the Chinese mainland coast- 
line, but also the new ones it has placed on 
the Spratlys and Paracels. China could fill 
in any gaps using surveillance planes or 
fighter jets, both of which it has deployed 
on these islands, or else with radar- 
equipped destroyers. China could probably 
track “the vast majority of foreign aircraft” 
entering the ADIZ, says Mr Cooper. 

American military planes would un- 
doubtedly ignore China’s rules, as they do 
in the East China Sea. So why bother? The 
answer is that even a partially successful 
ADIZ might benefit China. Although an 
ADIZ does not imply sovereignty over the 
airspace it covers, it can be used to show 
authority. In 2010, for instance, Japan ex- 
tended its ADIZ to cover a Japanese-held is- 
land claimed by Taiwan, which Taiwan had 
included in its own ADIZ. There is no evi- 
dence that China has used its existing ADIZ 
to disrupt civilian air-traffic, but it may see 
it as a tool for doing so in acrisis. And Chi- 
na may see an ADIZ in the South China Sea 
as a Way of justifying more air patrols there. 

But there are drawbacks. China’s claim 
to the South China Sea is vague. Its maps 
show a “nine-dash line” which loops 
around the entire sea, but the government 
does not give the line’s co-ordinates nor 
Say what it means. In the East China Sea, 
China’s ADIZ largely follows its claimed 
continental shelf. If an ADIz in the South 
China Sea were to be drawn only around 
the scattering of Chinese-held features, it 
could “fatally undermine” any attempt by 
China to claim everything within the line, 
says Alessio Patalano of King’s College Lon- 
don. But if it were to follow that line, there 
would bea bigger uproar. For years, the ten- 
member Association of South-East Asian 
Nations has been divided over how to han- 
dle China. Several members are keen to 
mollify it, while a few would prefer to be 
tough. A virtual summit is due later this 
month. An Apiz could tip the diplomatic 
balance, says Collin Koh of the S. Rajarat- 
nam School of International Studies in Sin- 
gapore. The bloc’s efforts to negotiate a 
code of conduct with China to regulate be- 
haviour in the sea could be acasualty. 

America’s decision to send warships, 
drones and bombers to patrol near the be- 
leaguered West Capella (until the drillship 
left the areain May), and its current deploy- 


TSS ee 
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China I, 
CHINA Seay 
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TAIWAN jC ACIELC 
OCEAN 
Vietnamese r 
fishing boat . . 
Hainan Hee South China/Taiwan i 
(approx) China # nine-dash line Brienne 
Aprile, June S€¢ PHILIPPINES Sea 
ssinking collision 
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BRUNEI — 550 km Transparency Initiative; 


press reports 


ment of the three carriers, isasignal of sup- 
port for China's rivals. In a letter to the UN 
on Juneist America decried China's “exces- 
Sive maritime claims”. It has been sending 
growing numbers of warships to challenge 
those claims by sailing through waters that 
China says it owns. The most recent such 
“freedom of navigation operation”, on May 
28th, was the fifth this year. Even without 
an ADIZ, the sparring will intensify. 


Fighting the pandemic 


It’s back 


BEIJING 
An outbreak of covid-19 in the capital 
is causing alarm 


(€HHE SAFETY and Stability of the capital 

has a direct impact on the overall 
work of the party and government.” So Xi 
Jinping, China's leader, reminded officials 
in February, as he urged them to pay partic- 
ular attention to keeping Beijing free of co- 
vid-19. For most of the past eight weeks, 
city officials have had reason to feel 
chuffed, with no new cases involving local 
transmission (and usually only a handful 
at most every day elsewhere in China). In- 
deed, life had returned almost to normal in 
the capital, except for the rarity of foreign 
faces—the country’s borders remain shut 
to most non-citizens. Then the mood in 
Beijing suddenly changed. 

Officials confirmed an outbreak of new 
infections on June uth, concentrated in 
Fengtai, a south-western district. The 
number of cases in the city climbed steeply 
each following day. By the time The Econo- 
mist went to press, 158 people in Beijing had 
been confirmed to have the disease. Many 


The Economist June 20th 2020 


of them had visited or worked in Xinfadil, a 
sprawling wholesale market that is the sin- 
gle largest source of the city’s fresh fruit, 
vegetables, meat and seafood. The discov- 
ery of the coronavirus on a board on which 
salmon had been chopped prompted spec- 
ulation by officials that the imported fish 
was a possible source. Many scientists 
deem this unlikely. 

Officials describe the situation as 
“grim” and Say the city is now in “wartime 
mode”. Two officials in Fengtai have been 
sacked “for misconduct in office during 
epidemic prevention and control”. The 
manager of the market has also been dis- 
missed. The surrounding neighbourhood 
and dozens of others have been designated 
“high” or “medium” risk, meaning their 
residents are not allowed to leave the city. 
Other Beijingers will only be allowed to go 
elsewhere after securing a negative test re- 
sult for the coronavirus. A massive cam- 
paign has been launched to trace and test 
the 356,000 people who, Officials say, have 
been to the market since May 30th, have 
had close contact with someone who has 
gone there, or live nearby. 

Officials are trying to show that they are 
responding decisively, while not appearing 
to panic. OnJune16th, ata press conference 
held to announce the government's re- 
sponse, officials who attended did not wear 
face masks. They spoke of “restrictions” 
and avoided the word “lockdown”. 

But it feels like one. Many flights to and 
from Beijing, as well as many train and bus 
services, have been cancelled. Schools and 
universities, which had only recently start- 
ed to reopen, have been ordered to shut 
down again. Businesses, including shops 
and restaurants, may remain open, but 
must step up precautions. People have 
been urged to work from home. 

Smaller clusters have emerged in other 
parts of the country and have been met 
with similarly decisive countermeasures. 
But the stakes are higher in Beijing, be- 
cause of its symbolic importance. A failure 
to control an outbreak in the capital would 
undermine the government's efforts to 
portray its success in combating covid-19 
as evidence of China’s political superiority. 

Many of Beijing’s 21m people, like oth- 
ers elsewhere in China, appear confident in 
the government. “Dammit!” blurts a Mr Li, 
a shopkeeper in Chaoyang, a district in 
eastern Beijing. “I really thought we had 
made it through. It’s awful!” he says. But he 
says he accepts the need for new restric- 
tions and that he believes they will suc- 
ceed. If normal life is severely disrupted for 
long, however, patience may wear thin 
among those who have suffered blows to 
their livelihoods or education. That may 
have been on Mr Xi’s mind when he 
stressed stability. Officials will go all out in 
their efforts to crush this outbreak, not 
least to keep him happy. @ 


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36 China 


Chaguan | Why China bullies 


The Economist June 20th 2020 


It sees a world distracted by covid-19, and too economically weak to hold it back 





HINAIS OFTEN Called a country in thrall to nationalism. The re- 

ality is more complex than that, and more cynical. For proof, 
look at the remarkable calm (so far, at least) that has reigned since 
June 15th, when Chinese and Indian troops fought their deadliest 
border skirmish in almost half a century. On a sweltering after- 
noon in Beijing, nearly three days after that Himalayan clash, a 
couple of bored-looking police were the only sign of extra security 
around India’s embassy. 

China’s state-run media had by then issued terse reports of a 
violent border incident. Lots of internet users reposted news items 
about dead Indian soldiers. There was only limited grumbling 
about the failure of official Chinese sources to reveal details of ca- 
Sualties suffered by the Chinese army. Indeed, some netizens 
treated the story as ajoke, mocking India’s soldiers as feeble. 

Compare that muted response with the rage provoked last Oc- 
tober by the manager of an American basketball team, Daryl Morey 
of the Houston Rockets, when he retweeted the slogan: “Fight for 
freedom, stand with Hong Kong’, in support of anti-government 
protests in that territory. Millions of Chinese demanded Mr Mo- 
rey’s sacking. Within two days Chinese broadcasters announced 
that they would not show Rockets games. 

Chinese nationalism is often compared to a tiger which Com- 
munist Party bosses have fed for years—and which they are now 
condemned to ride, for fear of being eaten if they dismount. In re- 
ality, popular nationalism resembles a deep, man-made reservoir, 
created by the damming-up and channelling of long-existing 
forces. Most of the time, Chinese leaders can restrain or unleash 
public rage at will. Only in the biggest crises do they feel con- 
Strained to open the floodgates to ease dangerous pressure. 

Public grievances are especially strong when America, Japan or 
other much-condemned countries are involved. Chaguan was a fre- 
porter in Beijing in May 1999 when NATO warplanes bombed Chi- 
na’s embassy in Belgrade, killing three journalists. Chinese leaders 
dismissed American promises that this was an accident, and for 
four days let students hurl rocks at the American and British em- 
bassies. Violence was controlled like water from a tap. Smashing 
windows and diplomats’ parked cars was allowed. But when 
youngsters tried to burn the American embassy’s flag with a flam- 


ing rag on along bamboo pole, Chaguan watched paramilitary po- 
lice beat them back. “Traitors!” howled the crowd. 

Often dismissed by Chinese as poor and chaotic, India is notin 
the rogue’s gallery of imperialist bullies that China’s young learn 
about at school. Vitally, two-way trade with India is rather modest: 
11 countries are larger trade partners for China. All those factors 
leave Chinese rulers free to downplay a crisis with India. For even 
when China appears reckless, itis calculating rewards and risks. 


Opportunistic yes, reckless no 

A revealing paper published last year by Ketian Zhang of George 
Mason University, in Virginia, charts how China has been throw- 
ing its weight around in its region. Titled “Cautious Bully: Reputa- 
tion, Resolve and Beijing's Use of Coercion in the South China Sea’, 
it tests claims that China’s willingness to use force is explained by 
its growing military strength or the assertiveness of its leaders. Ac- 
tually, China used its armed forces more in 1990s, when they were 
weak, the paper notes. Today China prefers to use its coastguard, 
its maritime militia and other agencies to bully neighbours. China 
was rather aggressive under Hu Jintao, the country’s distinctly 
cautious leader in 2002-12. Drawing on Chinese archives and inter- 
views with officials, Ms Zhang offers a “cost-balancing theory” of 
decision-making: that China uses coercion “when the need to es- 
tablish a reputation for resolve is high and the economic cost is 
low’. Thus China was quiet in the South China Sea in the early 
2000s, when it wanted a free-trade deal with the Association of 
South-East Asian Nations. Later it became assertive after deciding 
that this group needed Chinese trade more than the other way 
round—and had to be deterred from seeking international help in 
the South China Sea. China especially likes to inflict asymmetric 
economic pain, as when it banned imports of bananas from the 
Philippines during a territorial dispute in 2012, devastating Filipi- 
no farmers but barely hurting its own consumers. 

That pattern continues. Recent Chinese boycotts have targeted 
things like Australian beef or Houston Rockets games, but not 
more vital commodities. All this casts another light on China’s as- 
sertiveness during this pandemic year, and the notion that China 
is taking advantage of a world distracted by covid-19 to throw its 
weight around. It is true that China has been aggressive in recent 
months. Beyond its readiness to skirmish on the Indian border, it 
has decided to impose a draconian national-security law on Hong 
Kong, slapped trade boycotts on Australia and other Western na- 
tions, and sent coastguard ships to sink or harass foreign vessels in 
the contested waters of the South China Sea. It is also true that the 
world is geopolitically distracted. It is hard for governments to 
chide China over democracy in Hong Kong, say, while also negoti- 
ating to buy Chinese ventilators. But economics matters, too. 

This is atime of slumping global demand for China’s goods and 
interrupted supply chains. Chinese officials are betting on domes- 
tic demand to drive their country’s recovery from covid-19. To con- 
trol the virus, the mainland’s borders are closed to almost all for- 
eigners. Chinese parents are thinking twice about sending 
students to universities in America, Australia and Europe. Chinese 
officials growl that Hong Kong-based foreign banks must support 
the national-security law, for they are eminently replaceable. 

Allin all, China feels less reliant on other countries than it has 
fora while. That same China is also being unusually assertive. Fol- 
low the logic through, and having limited economic ties with Chi- 
na may not make other countries safer. India is the latest country 
to be confronted with that dilemma. It will not be the last. & 


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MiteCel (a Rime Viale: 


The Economist June 20th 2020 











Covid-19 in Africa 


Testing times 


JOHANNESBURG 


African countries are struggling to keep track of the coronavirus 


OUTH AFRICA had a plan for slowing the 
S spread of covid-19. As outlined by Salim 
Abdool Karim, chair of the medical com- 
mittee advising President Cyril Rama- 
phosa, on April 13th, the country would 
draw on its earlier experience using com- 
munity health workers to deal with HIV 
and tuberculosis. It would screen millions 
of people in poorer areas. Those with 
symptoms would be tested and then 
treated and quarantined if necessary. 

Yet a sound strategy has been under- 
mined by, among other things, testing fail- 
ures. State-run laboratories suggested they 
could do 36,000 tests per day by the end of 
April. Since April 5th they have managed to 
do just one-fifth of that. Results have also 
taken too long. As of June 6th the average 
turnaround time was 12 days. 

Such delays mean the HIv-inspired 
Strategy is “totally futile’, argues Marc 
Mendelson, an infectious-disease special- 


ist at Groote Schuur Hospital in Cape Town. 
Waiting 12 days foran HIV test is agonising, 
but the patient will probably not infect 
anyone during that time. In the case of co- 
vid-19, by the time a result arrives, a patient 
may have infected scores of others. 

Delays put more pressure on hospitals. 
In the wider Western Cape province, which 
has 0.5% of Africa’s population and 17% of 
its known coronavirus cases, intensive- 
care units are filling up. Others in South Af- 
rica may soon follow suit. The country had 
the 1th highest five-day moving average of 
confirmed new cases as of June 16th—and 
the rate of growth is accelerating. 

If South Africa—which with Ghana ac- 
counts for about half of all tests in sub-Sa- 
haran Africa—is not testing enough, then 
nor are most other countries in the region. 
At the start of June African countries had 
tested, on average, fewer than 1,700 people 
per im, a fraction of the number in rich 


+ Also in this section 
38 Malawi's election re-run 


| 39 Football and war 





39 Taxing African cities 


40 The crisis in Syria 


countries (America had done 26 times 
more per million people). “Testing is our 
Achilles heel,” says John Nkengasong of Af- 
rica CDC, a pan-African health institution. 
It is also symbolic of broader weaknesses 
in African health systems that mean the 
continent is less able to cope with mass 
outbreaks than rich parts of the world. 

The challenge of testing has long been 
recognised. In February the World Health 
Organisation (WHO) overhauled African 
labs. Today 43 of the 47 countries in its Afri- 
ca region can do molecular testing for co- 
vid-19, up from just two at the start of the 
year. Nevertheless, most countries still 
lack resources. Nigeria has the capacity to 
do atleast10,o00 tests per day, but has aver- 
aged fewer than 900 since announcing its 
first case on February 27th. Some countries 
have had to wait more than two months for 
orders of test kits to be delivered. 

The problem is that African countries 
are competing in the market for testing 
materials with rich countries, many of 
which are regular customers of the manu- 
facturers and often buy in bulk. Some small 
African countries have placed orders for 
fewer than 10,000 kits, as many as Ger- 
many uses ina few hours. 

Philanthropy has helped. In most Afri- 
can countries most of the testing kits used 


are those donated by the charitable foun- >> 


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38 Middle East & Africa 


> dation of Jack Ma, Alibaba’s founder. He 
has given at least 20,000 kits to every coun- 
try in Africa. Yet this is far short of what is 
required. On June 3rd Dr Nkengasong said 
Africa needed at least 20m new test kits 
within 100 days. 

To try to meet that goal, countries are 
pooling their resources and placing large 
joint orders. Africa cDc has agreed with 
manufacturers that 90m kits will be 
bought over the next six months. A bulk 
purchase establishes trust, argues Fatou- 
mata Ba, a Senegalese venture capitalist 
and one of several African executives lend- 
ing their expertise to the Partnership to Ac- 
celerate Covid-19 Testing (PACT) scheme. 

PACT is a Step forward, but problems re- 
main. The first kits bought under the agree- 
ment are due to arrive only by the end of the 
month. And having kits does not obviate 
the need for technicians; South Africa la- 
boured to keep pace even when it had 
enough materials. 

The struggle to increase testing augurs 
ill for the broader response. The number of 
confirmed cases in Africa has been rising 
by about 30% a week over the past month. 
But that glosses over trouble spots, such as 
South Africa or Guinea-Bissau, where al- 
most one-tenth of health workers have 
been infected. And it means that the abso- 
lute number of cases is mounting: it took 
98 days for Africa to go from 1 to 100,000 
cases, but only 18 days to reach 200,000. 

The overall numbers matter, because 
African health systems will tend to be over- 
whelmed at an earlier point than those in 
Asia or Europe. Such weaknesses are the 
main reason why a study published by the 
Centre for Global Development, a think- 
tank, projected that death rates in Africa 
could be many times higher than predicted 
by other models that do not account for 
scant staff and cash-strapped hospitals. Al- 
ready countries such as Kenya and Nigeria 
are planning ways to care for people in 
their homes rather than in hospitals. 

Others are trying new ways of gauging 
the disease’s progress. Just four African 
countries keep high-quality records show- 


a 

No peak in sight 

Sub-Saharan Africa, confirmed cases of covid-19 
Log scale 








1,000,000 
Total 100,000 
South Africa: | 10,000 
Senegal 1,000 
= — 
{ff ——— Rwanda 100 
y 10 
Alf Nigeria 
Feb Mar Apr May Jun 


2020 


Sources: Johns Hopkins University CSSE; The Economist 


ing causes of deaths, according to the UN. 
In many places most deaths are not record- 
ed, letalone their cause. That makes it hard 
to calculate whether death rates are higher 
than average, a useful measure of the dis- 
ease’s effects. In the absence of excess- 
mortality data, countries such as Rwanda 
and Senegal are doing “verbal autopsies”, 
where next of kin are interviewed. 

South Africa does have mortality data 
going back years. In the three weeks to June 
9th deaths from natural causes were 
unusually high in Cape Town, and on the 
rise elsewhere, too. At this point more test- 
ing would help, says Dr Mendelson, but the 
focus must be on reducing deaths. With 
that in mind the Western Cape is rationing 
public testing to those over the age of 55 
and opening field hospitals. “We cannot 
test our way out of the crisis,’ hesays. 


Malawi 


President v people 


LILONGWE 
Despite courageous judges, Malawi’s 
crisis is not yet over 


ARTON KAMCHEDZERA IS a man Of rea- 
Goon. The professor of law at the Univer- 
sity of Malawi teaches contracts, trusts and 
constitutions. But over the past year, as 
President Peter Mutharika has repeatedly 
been foiled in his efforts to distort the elec- 
toral process, Mr Kamchedzera has won- 
dered whether there might be a higher 
power at work: God, perhaps, or “some 
kind of deus ex machina’. 

It must feel that way for many in the 
southern African country of 18m people. A 
general election in May 2019, which Mr 
Mutharika was at first declared to have 
won, involved the liberal use of Tipp-Ex, a 
correction fluid, to adjust voting tallies. It 
seemed that credible allegations of rigging 
were not going to change the outcome. Ob- 
servers from the European Union noted an 
“unlevel playing field”, but said the vote 
was “well managed, inclusive, transparent 
and competitive”. 

Malawians, however, did not accept 
such whitewashing. Protesters took to the 
streets. The two largest opposition parties, 
the Malawi Congress Party (MCP) and the 
United Transformation Movement (UTM), 
went to the constitutional court. Its judges 
refused parcels of cash that were allegedly 
offered by a businessman linked to the 
president. On February 3rd the court can- 
celled the presidential portion of the elec- 
tion and ordered a re-run. 

It was only the second time in African 
history that judges have nullified a vote. A 
fresh election is scheduled for June 23rd. 


The Economist June 20th 2020 


Yet Malawi is far from out of trouble. Much 
depends on what happens in the next few 
weeks. If Malawi, one of the world’s poor- 
est countries, can have a fair election, it 
will not just be good for Malawians. It will 
also undermine the argument, used by au- 
tocrats everywhere, that covid-i9 means 
democracy ought to wait. 

Mr Mutharika has tried to hobble the 
process. He appealed to the Supreme Court. 
He delayed appointing a new electoral 
commission until June 7th. He dithered 
over the date for the election. And earlier 
this month his government tried to force 
the chief justice to retire early. 

But the president has been thwarted at 
every turn. Lawyers rallied around the 
chief justice. The Supreme Court rejected 
the appeal. Opposition parties got the elec- 
tion date onto the statute book, in part by 
defying covid-related restrictions so they 
could pack the chamber with their MPs. 

The opposition’s determination makes 
sense. Mr Mutharika, who took office in 
2014, is the fourth president since Hastings 
Banda’s long authoritarian rule ended in 
1994. The current government has faced 
myriad allegations of corruption. Fully 
85% of Malawians feel the country is head- 
ing in the wrong direction, according toa 
recent poll by the Institute of Public Opin- 
ion and Research (IPOR). 

The survey suggests that the candidate 
of the opposition alliance, Lazarus Chak- 
wera of the Mcp, will win the re-run. 
Roughly half of respondents supported 
him, compared with about a third for Mr 
Mutharika; the rest were undecided or re- 
fused to say. Mr Chakwera, a pastor turned 
politician, bonded with his running-mate, 
Saulos Chilima (of the UTM), as they sat to- 
gether for months in the constitutional 
court. Their support bases are complemen- 
tary, says Boniface Dulani, a political scien- 
tist at the University of Malawi, Chancellor 
College. The McP is strong in rural areas, es- 
pecially in the middle of the country; UTM 
does best among young urbanites. 

But the duo are far from home and dry. 
There is still a dash to organise the vote. 
Ballot papers are being printed in Dubai 
and are not expected to arrive until June 
19th. The timetable is tight. If there are pro- 
cedural hiccups, Mr Mutharika may use 
them as an excuse to get his supporters 
onto the streets and to ask the courts for 
another nullification. 

But that may not work. If the margin of 
victory is wide, the court will probably for- 
give a snafu or two. The judges have not 
only upheld the constitution in the past 
year. They have also reflected the mood of 
the people: 80% of Malawians wanted a re- 
run, Says IPOR. 

Brave judges ensured that Malawi has a 
chance of a fair election. But they can do 
only so much. “Malawians will need to stay 
vigilant,” says Mr Kamchedzera. @ 


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The Economist June 20th 2020 





More than a game 


Big wins on the pitch can bring big benefits off it 


ID A MISSED penalty kick help bring 
D peace to Ivory Coast? In 2005 its 
national football team was on the brink 
of qualifying for the World Cup for the 
first time. Having won its final qualifying 
match, it just needed Cameroon to lose 
or draw the match it was playing against 
Egypt. The awarding of a late penalty set 
the Cameroonians up fora win. But 
Pierre Wome hit the post. The ball flew 
wide. Ivory Coast was in. 

Listening on the radio, the Ivorian 
players erupted. Then they pleaded for 
peace in their war-torn country. “We 
proved today that all Ivorians can coexist 
and play together,’ said Didier Drogba, 
the captain. The team knelt. “We beg you 
on our Knees...please lay down your 
weapons and hold elections,’ said Mr 
Drogba. The clip was played again and 
again on Ivorian television. In the 
months that followed the warring parties 
began talking and, eventually, agreed toa 
ceasefire. In 2007 they agreed to peace. 

There were, of course, factors in play 
other than Ivory Coast’s win, Mr Womé’s 
missed shot and Mr Drogba’s impas- 
sioned plea. But, according toa new 
study, the outcomes of important foot- 
ball matches can have a dramatic effect 
on national unity and, thus, civil wars. 

The study’s authors, led by Emilio 
Depetris-Chauvin of the Pontifical Cath- 
olic University of Chile, looked at how 
Africans identified themselves and how 
much they said they trusted each other in 
the days after important national-team 
matches. They found that people sur- 
veyed after their national squad had won 


were 37% less likely to identify primarily 
with their ethnic group, and 30% more 
likely to trust other ethnicities, than 
those interviewed just before. “This is 
entirely driven by national-team victo- 
ries, whereas defeats have no discernible 
impact on that self-identification,’ say 
the authors. 

The bigger the match, the bigger the 
boost to national solidarity and trust. 
This does not merely reflect a general 
post-victory euphoria, say the authors. 
Incumbent politicians and ruling parties 
got no bounce in approval from a win. 
Nor was there any impact on respon- 
dents’ optimism about the economy. 

Victories also lead to less violence. 
The authors compared countries that 
narrowly qualified for the African Cup of 
Nations in recent years with those that 
narrowly missed out. The countries that 
Squeaked in experienced almost10% less 
conflict in the next six months than 
those that did not. The make-up of the 
Squad probably matters, too. Mr Drogba 
noted that his team hailed “from the 
north, south, centre and west” of Ivory 
Coast. “The effect of victories is stronger 
the more diverse the ethnic composition 
of the national team,” say the authors. 

So could more football reduce conflict 
in Africa? Perhaps, but the positive re- 
sults only hold for high-stakes matches, 
not friendlies (matches unrelated toa 
competition). And the bonhomie can be 
fleeting. A second civil war broke out in 
Ivory Coast in 2010. Calm returned in 
2011, after Mr Drogba and many others 
again appealed for peace. 








Middle East & Africa i 


African cities 


A tax on all your 
houses 


FREETOWN AND KAMPALA 
The mayor of Freetown is reforming 
Sierra Leone’s rotten property tax 


HEN ASKED why she wanted to be 
mayor of Sierra Leone’s capital, Free- 
town, Yvonne Aki-Sawyerr answers with- 
out hesitation: “My heart was breaking at 
what the city was becoming.” In her two 
years alot has improved. Gutters have been 
dug in flood-prone districts. Dustbins have 
proliferated throughout the city. Grass is 
Sprouting from a roundabout once strewn 
with litter. But there is still much to do. 
Electricity flickers. Taps run dry. Rubbish 
heaps bigger than football fields still fester. 
Last year the cash-strapped city council 
got around 70% of its budget from foreign 
donors. The mayor is revamping property 
taxes, which she hopes will bring in five 
times more revenue this year. Not only 
does she want the rich to cough up more, 
She also wants payments to go directly into 
the bank, rather than be paid in cash. These 
are big reforms on a continent where prop- 
erty taxes bring in less than 0.4% of GDP, 
compared with about 2% in the rich world. 

Taxing property should reap big bene- 
fits, but it is hard to value buildings when 
you re not even sure if they exist. Many Af- 
rican cities will triple in size by 2050. But 
taxmen tend to live in the past: officials in 
Kenya's capital, Nairobi, use a property reg- 
ister dating back to 1982. Freetown’s regis- 
ter, until Ms Aki-Sawyerr came along, wasa 
bundle of papers covered in ink scrawls. 

It has since been digitised with the help 
of the International Growth Centre and In- 
ternational Centre for Tax and Develop- 
ment (ICTD). Researchers used satellite 
photos to count properties and sent staff 
traipsing around the city with smart- 
phones, plugging in data such as the size of 
the roof and whether a house was made of 
brick or tin. A points-based system lets 
them value properties consistently. Under 
the old method “they were cheating us,’ 
says Victor Obofor-Smith, who owns a tin 
Shack but has been paying the same in tax 
as his neighbour in a three-storey brick 
edifice. In Kampala, Uganda's capital, the 
city council is also revaluing property. 

Systems can be too simple. For instance, 
some cities in Congo, Eritrea and Burundi 
tax a wooden hut at the same rate as a brick 
one with similar dimensions. Freetown’s 
new system has found a “sweet spot’, says 
the ICTD’s Wilson Prichard, as it is simple 
to administer, efficient and fair. Still, citi- 
zens need convincing that they should pay 
taxes in cities with crummy services. 
Counting houses is only half the battle. @ 


39 


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4o Middle East & Africa 





Syria 
From bad to worse 


Bashar al-Assad has no answers for a country in crisis 


HOUGH IT HAS suffered through nine 
i eee of civil war, leaving hundreds of 
thousands dead, in some ways Syria is back 
where it started. Protesters in the south- 
east have been chanting anti-regime slo- 
gans, the same ones that triggered the 
fighting. “God, the nation and freedom,’ 
they cry, dropping Syria’s dictator, Bashar 
al-Assad (pictured), from the official trin- 
ity. A reporter on State television, covering 
a sparsely attended counter-rally, strug- 
gled to find bystanders willing to praise Mr 
Assad. Most Syrians still complain of pov- 
erty, corruption and social inequality. “The 
grievances that sparked the uprising are 
even more pronounced today,’ says a uni- 
versity lecturer in Damascus. 

With help from Iran and Russia, and by 
bombing and gassing his own people, Mr 
Assad has all but won the war. Idlib is the 
last big rebel stronghold in Syria (see map). 
But the regime now faces new challenges 
that cannot be resolved with force. A col- 
lapsing currency is pushing ever more Syri- 
ans into poverty. A new raft of American 
sanctions will make matters worse. Oppo- 
sition has cropped up even within Mr As- 
sad’s own ranks. He offers no solutions to 
the growing crisis. 

When Mr Assad inherited the presiden- 
cy from his father two decades ago, Syria 
was a middle-income country. Now over 
80% of its people are poor. Last year GDP 
was thought to be about a third of what it 
was before the war. This year it will be even 
lower. A covid-i9 lockdown is partly to 


blame. Then there is the situation in neigh- 
bouring Lebanon. Syria’s biggest foreign 
market and main supplier of dollars is 
mired in a financial crisis. With dollars 
scarce in both countries, the value of the 
Syrian pound has fallen to record lows. The 
currency traded at about 50 to the dollar be- 
fore the war. Today a greenback fetches 
about 3,000 pounds on the black market. 
The rebels in Idlib recently adopted the 
Turkish lira to replace the pound. 

The value of government salaries is also 
sinking, as prices rise. The upshot, says the 
UN, is that many people can no longer af- 
ford food. Even a local football hero posted 
a picture of himself on the street with his 
belongings. Pharmacies have run out of 
medicines because producers don’t have 
enough money to pay for ingredients from 
abroad. Shops and cafés which reopened 
after the lockdown was lifted have quickly 
closed again for want of custom. In an ef- 
fort to prop up its reserves of hard cash, the 
government has made things worse. Banks 
have been told to stop lending. They have 
switched off their cash machines and lim- 
ited withdrawals. People wait outside in 
queues, hoping to recover what savings 
they can before the currency drops again. 

Short on answers, as wellas cash, Mr As- 
sad has begun fleecing his own wealthy 
Supporters. Many have acquiesced—but 
not Rami Makhlouf, Syria’s wealthiest ty- 
coon and Mr Assad’s cousin. In May he be- 
gan posting videos on social media in 
which he complained about the regime’s 


The Economist June 20th 2020 


heavy-handedness and its confiscation of 
his assets. Earlier this month Mr Assad 
seized Syriatel, the country’s biggest mo- 
bile-network provider, from Mr Makhlouf. 

Other former supporters are also turn- 
ing their backs on the regime. Hundreds of 
members of the Alawite sect, an offshoot of 
Shia Islam from which Mr Assad hails, have 
protested along the coast. The Druze, fol- 
lowers of a small esoteric religion, have 
taken to the streets of Suweida. “The re- 
gime’s problem is with its loyalists, not 
with the opposition,” says Ibrahim Hamidi, 
a Syrian journalist. But violence is also flar- 
ing in places such as Daraa, where the 
uprising began—and which the regime 
thought it had pacified. 

On June 11th Mr Assad dismissed his 
prime minister, Imad Khamis. The presi- 
dent now relies on a diminishing circle of 
cronies. But his problems are growing. On 
June17th America implemented tough new 
Sanctions on Syria, under what is known as 
the Caesar Act (named after a former Syrian 
military photographer who smuggled pic- 
tures of torture out of the country). They 
target any person, company or institu- 
tion—Syrian or foreign—that does busi- 
ness with or provides support to the re- 
gime. The legislation’s net has been cast so 
wide that it is expected to deter investors 
and firms which hoped to participate in 
Syria's reconstruction. 

Mr Assad is undoubtedly weak. Still, he 
is probably not going anywhere. His people 
are worn out; millions depend on him toal- 
low the delivery of UN food aid. Four de- 
cades of sanctions have taught the regime 
how to cope with pressure and redirect 
blame. It says the West is waging an eco- 
nomic war on Syria, after failing to unseat 
Mr Assad by arming the rebels. It castigates 
America for handing the territory contain- 
ing Syria's oilfields and its bread basket to 
the Kurds. It is falling back on old smug- 
gling routes, mostly through Lebanon, and 
creating new ones. Most importantly, Rus- 
Sia and Iran continue to prop up the dicta- 
tor. They are still hoping for a return on 
theirinvestment. & 


ee 
| Turkish troops/rebels oo 


Rebels aie 
Turkey-backedf 
* 


TURKEY 








| 

Med. Sea SYRIA _ 
i 4 alien | 

Rebels 
LEBANON US-backed : 
—Waassus > > IRAQ 
Daraa 

ISRAEL | @ouweida _100 km | 

Areas of control 


June 15th 2020 


JORDAN . . 
Source: Janes Conflict Monitor 


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The 


Economist 





SPECIAL 
REPORT: 


The new world disorder 







> June 20th 2020 
| Leadership vacuum 
China rising 
Peacekeeping 


Nuclear trials 


O | CO ® U1} W 


The reform test 











4 Asking the world 


12 Looking ahead 


UNhappy birthday 








The Economist Group — 


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INITIATIVE 





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“There can be no healthy ocean without better 


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Missing in action 


ean 
i 


Seventy-five years ago global leaders designed the peace even as they fought the war. 


Today's leaders need to do something similar, says Daniel Franklin 


FEW WEEKS after Japan’s attack on Pearl Harbour, Winston 

Churchill was a guest at the White House. President Franklin 
Roosevelt was so eager to tell him he had come up witha name for 
what would become a new world security organisation that, the 
story goes, he hurried into Churchill’s bedroom, to find the prime 
minister naked save for a bathrobe. What is striking about the ori- 
gins of the “United Nations”, Roosevelt’s choice, is not this unor- 
thodox manner of communication (a modern American president 
might have tweeted his idea) but that, in the midst of war, states- 
men were already planning for the peace. 

On the economic front, this led to the creation, in 1944 at Bret- 
ton Woods in New Hampshire, of the World Bank and the Interna- 
tional Monetary Fund (IMF). On the security side, plans for the UN 
were fleshed out at Dumbarton Oaks in Washington, DC, agreed to 
in outline by Churchill, Roosevelt and Stalin at Yalta in the Crimea 
and finalised at a conference in San Francisco after Roosevelt's 
death. “Oh what a great day this can be in history,” proclaimed 
President Harry Truman at the concluding session on June 26th 
1945, When the founding charter was signed. Countries had put 
aside their differences “in one unshakable unity of determina- 
tion—to find a way to end wars.” 

Euphoria soon gave way to frustration as the cold war set in. 
Yet, as the new organisation’s second secretary-general, Dag Ham- 
marskjold, observed, the UN “was not created to take mankind to 
heaven but to save humanity from hell”. For 75 years there have 
been no world wars (though too many smaller ones). Unlike its 
precursor, the League of Nations, the UN has proved resilient. Its 
membership has grown from 51countries to193, through decoloni- 


sation and the break-up of the Soviet empire. It sits at the centre of 
a rules-based world order, and its activities and those ofits special- 
ised agencies span almost every aspect of life. 

Yet no international order lasts for ever. Over time the balance 
of power shifts, systems fail to adapt and the rot sets in. The peace 
after the Congress of Vienna in 1815 eroded slowly; that after the 
Treaty of Versailles in 1919 collapsed fast. A change from one domi- 
nant power to another has usually meant war (the shift from Brit- 
ain to America Over acentury ago being a rare exception). 

Covid-19 is a new challenge. A vacuum exists where the world 
would normally look for American leadership. Instead it sees Pres- 
ident Donald Trump making a fool of himself, suggesting wacky 
cures. Mr Trump has been more interested in blaming China for 
the pandemic than rallying an international response, his most 
prominent move being to suspend funding to the World Health Or- 
ganisation (WHO) and threaten to leave it. In March G7 foreign min- 
isters could not even issue a statement because Mike Pompeo, 
America’s secretary of state, insisted it refer to the “Wuhan virus”. 

China’s initial response to the virus was a bungled cover-up, 
but since its harsh lockdown brought covid-19 under control, it has 
touted its successes around the world and supplied protective kit 
to thankful countries. The Europeans, meanwhile, closed borders, 
including in their supposedly frontier-free Schengen area. A di- 
vided UN Security Council has been missing in action. 

The world order was already looking wobbly. The global finan- 
cial crisis of 2007-09 fed populism and a wariness of international 
institutions. These often reflect the realities of decades ago, not to- 
day (the Security Council’s five veto-holding permanent members 





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» are the victorious powers of 1945), yet they resist reform. The rules 
remain, but the big powers increasingly feel free to ignore them. 
Russia has brazenly grabbed a piece of Ukraine. China has occu- 
pied disputed territories in the South China Sea. 

America has long complained about the cost of propping up the 
multilateral system and fretted about “Gulliverisation’, being tied 
down by punier powers. Along with Britain it invaded Iraq in 2003 
without a mandate from the Security Council. President Barack 
Obama, prioritising “nation-building at home’, began a semi- 
retreat from the burdens of global leadership. But the principal ar- 
chitect of the system now has a president who seems to delight in 
taking a wrecking ball to it. 

Mr Trump has withdrawn from the Paris agreement on climate 
change and the nuclear deal with Iran. He has cast doubt on Ameri- 
ca’s commitment to NATO (though he has strengthened its forces 
in many parts of Europe). He has continued to undermine the 
World Trade Organisation (WTO) by blocking the appointment of 
new judges to its appellate body. He has called the European Union 
a “foe”. His love of sanctions causes further friction, prompting 
complaints that America is abusing the “exorbitant privilege” of 
having the world’s reserve currency and stimulating interest 
(among allies and rivals alike) in reducing the dollar’s dominance. 

At the UN, America’s allies complain that Mr Trump “cherry- 
picks”. What is new is not pulling out of an agency or two (Mr 
Trump has pulled out of the Paris-based education and cultural 
agency, UNESCO, and the Geneva-based Human Rights Council, 
complaining of anti-Israel bias), but the lack of commitment tothe 
system. His America First rhetoric echoes the language of Henry 
Cabot Lodge, an isolationist senator who successfully fought 
against joining the League of Nations in the 1920s. It is a stark con- 
trast with the internationalism of Roosevelt and Truman. “The fu- 
ture does not belong to globalists,’ Mr Trump told the UN General 
Assembly last September. “The future belongs to patriots.” All this 
means that, far from looking forward to a happy birthday, the UN 
approaches its 75th anniversary in a State of high anxiety. 

Its secretary-general, Antonio Guterres, a jovial former prime 
minister of Portugal, divides the UN’s history into three periods. 
The first was “bipolar”, characterised by cold-war rivalry between 
America and the Soviet Union. Although the Security Council was 
largely frozen, there was a certain predictability in the stand-off, 
and the UN was inventive enough to expand into areas such as 
peacekeeping, which is not even mentioned in its charter. 

After the collapse of communism came a brief “unipolar” per- 
iod, when America’s dominance was barely contested. The Securi- 


Te 


From Truman to Trump 
United Nations, number of member countries 























The Economist June 20th 2020 


ty Council was able to function as its founders envisaged, launch- 
ing a flurry of peace missions as well as authorising the 
American-led liberation of Kuwait in 1991. George Bush senior 
hailed a “new world order’. The UN developed the principle of a 
“responsibility to protect” populations against mass atrocities. 

But, bogged down in the Middle East and Afghanistan, America 
has grown weary and inward-looking. In the wider world, wari- 
ness about the West imposing its values, especially by force, has 
increased. A revanchist Russia and a soaring China increasingly 
challenge America’s supremacy. The Security Council is once 
again stuck, reflecting renewed great-power rivalry. This third per- 
iod, as Mr Guterres sees it, is still unsettled. “The world is not yet 
multipolar, it’s essentially chaotic,’ he says. 


America, first 

A degree of chaos is not surprising, given the dramatic shifts that 
are starting to divide the world into competing spheres of influ- 
ence. Take the economy. Since 2000 China’s share of global GDP at 
market rates has gone from less than 4% to nearly 16%. Its technol- 
ogy giants, such as Alibaba, Tencent and Huawel, are spreading 
Chinese digital infrastructure abroad, especially in emerging mar- 
kets. China is the world’s largest exporter, and although a relative 
newcomer (having joined the club only in 2001) now presents it- 
self as chief defender of a WTO under assault from America. 

In finance, though the dollar still dominates, the yuan is poised 
to gain ground. At the IMF, China remains underrepresented, with 
a quota and voting share of only 6%. But as the fund strives to sup- 
port a stricken global economy, China will be acore consideration, 
whether in the design of debt relief (China is reckoned to have lent 
more than $140bn to African governments and state-owned enter- 
prises since 2000) or in increasing quotas. 

These upheavals spill over into the diplomatic and security di- 
mensions that are the focus of this special report. Are the UN, and 
the collaborative global governance it embodies, doomed to be less 
relevant in a world of great-power competition? It is surely too 
soon to give up on them. But to retain its clout and character the 
liberal order needs restored leadership and difficult reforms. 

The multilateral system has important strengths. One is that it 
is patently needed. The biggest problems cry out for international 
co-operation—as the pandemic powerfully illustrates. The world 
needs to work together on vaccines, on economic recovery and to 
support the most vulnerable countries. The head of the World Food 
Programme, David Beasley, a former Republican governor of South 
Carolina, has said speedy action is necessary to prevent “multiple 
famines of biblical proportions”. Concert- 
ed efforts are also needed on climate 
change, another challenge no country can 
tackle on its own. The risk of nuclear prolif- 
eration is growing. 





150 countries sign the UN charter South Sudan becomes 193rd member } 200 
A second advantage is that the UN is 
| First UN peacekeeping popular. It has made shameful mistakes. It 
| mission, to Palestine ; ode: 
| 150 failed to prevent genocide in Rwanda and 
+ General Assembly 
| adopts the Universal Berlin Wall falls Donald Trump } Srebrenica. UN peacekeepers are blamed 
Declaration of : First Gulf war begins alienate io fOr bringing cholera to Haiti and sexual 
Human Rights | | 3 | abuse to many of the places they were 
| ‘Cuban : People’s Republic Srebrenica Second Gulf aoa 
Tecate. NecChinatekec genocide war begins meant to protect. The UN’s oil-for-food 
crisis its seat in the + Darfur genocide 50 programme with Iraq led to a $1.8bn scam. 
UN building General Assembly — —_ Yet it is more trusted than many govern- 
PuNiewsVack and Security Council Paris climate 
in New agreement ments, according to the 2020 Edelman 
cl | ; | a aces |e ad 0 Trust Barometer. Across 32 countries sur- 
1945 i BO: BO et OD ac OD spc Oar D ey t BO ene BD oct Bucy 9D, 2000.05 
| Trygve ‘U Thant Kurt Javier Pérez ‘Kofi Annan 
‘Lie *Dag Hammarskjold Waldheim ‘*deCuellar *Boutros Boutros-Ghali 


Secretaries-general 


Source: United Nations 


AD aoe VD 25)-20 veyed by Pew last year, a median of 61% had 
a favourable opinion of the UN, against 
26% with an unfavourable view. A comfort- 


able majority of Americans think well of it, 


«Ban Ki-moon | Antonio 
*Guterres 


though there is a growing partisan divide: >> 


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The Economist June 20th 2020 


SY oJ =Yol F-] a=] ole) aa Mal=mal=\ ae) a (eel Ye) ge (-18 





> 77% of Democrats approve, but only 36% of Republicans. 

In another survey last year, by the Chicago Council on Global 
Affairs, seven out of ten Americans said it would be best if the 
country took an active part in world affairs, close to the highest on 
record. That points to a final force that should not be underesti- 
mated: the potential for American re-engagement. America re- 
mains a more powerful economy with greater reach in hard and 
soft power than any rivals. It could again be the standard-bearer for 
a liberal world order. 

It would be naive to expect sudden enthusiasm for multilater- 
alism from Mr Trump—and even beyond him. American suspicion 
of foreign entanglements is as old as the republic. Frustration with 
the WTO, NATO and the rest was mounting before Mr Trump tapped 
into it. The divisions at home that have deepened under his presi- 
dency make leadership abroad harder. Still, victory for Joe Biden in 
the presidential election in November would be, if not exactly a 
game-changer, at least a game-restarter. “We will be back,” Mr Bi- 
den promised last year’s Munich Security Conference. 

The UN wants to use its 75th anniversary for a grand consulta- 
tion on the future of multilateralism. Covid-1i9 has hijacked the 
global agenda. But it also creates an opportunity. Rather than de- 
stroying the system, the upheaval could spur countries into 
strengthening it. That will require planning for the future while 
tackling the crisis of the present. Today’s leaders need to emulate 
what their predecessors achieved so magnificently in1945. 


Who's in charge? 


As America gets tired, China gets busy 


RISES CAN bring clarity. In the financial crisis of 2008-09, the 
Co club of big economies came into its own, reflecting how 
economic power had spread beyond the rich world’s G7. One thing 
the covid-19 pandemic has laid bare is an absence of global leader- 
ship. This time the G20 has done little beyond a rhetorical pledge to 
“do whatever it takes” and supporting debt-repayment suspension 
for poor countries. America, which led global campaigns to defeat 
HIV/AIDS and Ebola, has been absorbed in its internal arguments. 
And the UN Security Council has confirmed its dysfunctionality. 

The council's five permanent members (P5) are split between 
the Western three and Russia and China; some suspect the au- 
thoritarian duo of having a formal pact. Russia wields its veto of- 
ten, sometimes alongside China. Instead of leaping into action 
over covid-19, the council mustered its first discussion of the crisis 
only in April. France and Russia have both been keen for the lead- 
ers of the P5 to get together in the UN’s anniversary year, but have 
found this hard to arrange. 

The pandemic hit when competition between America and 
China, the world’s dominant and emerging superpowers, was al- 
ready intense, stretching from trade and technology to finance and 
regional dominance in Asia. In America there is a bipartisan per- 
ception of China as a rival that steals intellectual property, takes 
advantage of America’s openness and is intent on chipping away at 
America’s lead. For its part, China is increasingly brazen in push- 
ing back against America (or any country that resists it). 

The covid-19 crisis is proving a telling case study of this rivalry, 
as America blames China for causing the pandemic and China po- 
sitions itself as the country most capable of dealing with it. Any re- 





treat by America from global leadership is an opportunity for Chi- 
na to gain ground. Whereas America has suspended funding to the 
WHO, China has promised $2bn to fight the pandemic. 

President Xi Jinping portrays China as a champion of multilat- 
eralism and talks of taking “an active part in leading the reform of 
the global governance system”. China has been building channels 
of influence outside the institutions that America designed. It set 
up the Asian Infrastructure Investment Bank, encroaching on the 
World Bank's territory. Ithas championed the BRICs (bringing it to- 
gether with Brazil, Russia, India and South Africa) and the Shang- 
hai Co-operation Organisation, an eight-member group that in- 
cludes Russia and Central Asian countries as well as India and 
Pakistan. And then there is Mr Xi’s Belt and Road Initiative (BRI), an 
all-embracing infrastructure and development campaign. 

China has also been methodically increasing its influence in 
existing institutions, not least the UN. It has raised its financial 
support even as America became stingier, becoming the second- 
biggest contributor to both the general and the peacekeeping bud- 
gets. It has grown more assertive. “Ten years ago, China was pretty 
discreet, pretending to be just an emerging country,’ says one 
European diplomat at the UN. “Now I can tell you they are totally 
uninhibited, they want to run the system.” 

China has been patiently placing high-fliers to work their way 
up through the ranks. Chinese nationals now head four of the UN’s 
15 specialised agencies, including the Food and Agriculture Orga- 
nisation in Rome and the International Telecommunication Un- 
ion in Geneva. Americans lead only one. Chinese officials toil away 
at inserting into documents favourable references to the BRI and 
language friendly to their interpretation of human rights, stress- 
ing national sovereignty and development (“mutual respect and 
win-win co-operation”). Behind the scenes China twists arms to 
avoid criticism of its repression in Xinjiang or Tibet. 

Small victories for China have mounted up, often in obscure 
documents and little-noticed forums, but occasionally raising 
eyebrows. In the 15-member Security Council, for example, the 
West and its friends can normally count on the requisite nine 
votes to get their way on procedural matters. But in March 2018 an 


American-backed proposal for the UN high commissioner for hu- >» 


a Special report The new world disorder 


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» man rights to brief a formal session on 
abuses in Syria was defeated when, after 
Chinese pressure, Ivory Coast switched 
sides at the last minute. 

The aim may not be to replace America 
aS a Superpower that bears burdens all 
around the world. More likely, China sim- 
ply wants an unencumbered path for fur- 
ther development. “People’s Republic of 
the United Nations’, a report last year from 
the Centre for a New American Security 
(CNAS), a think-tank, concluded that China was “making the world 
safe for autocracy’. For a long time America paid little attention, 
but it is now pushing back. In January the State Department ap- 
pointed a senior diplomat, Mark Lambert, to counter the “malign 
influence” of China and others at the UN. In March these efforts 
succeeded in thwarting China's bid for the top job at a fifth UN 
agency, the World Intellectual Property Organisation in Geneva. 

At least such moves reflect a recognition by the American ad- 
ministration that multilateral institutions matter. Just as Mr 
Trump no longer calls NATO “obsolete”, as he did before coming to 
power, he may yet find more use in the UN. He would not be the 
first American president to come to believe that, annoying as in- 
ternational forums are, they are better than a constant free-for-all, 
and they can take some of the load off a superpower. But his trans- 
actional approach has unnerved allies, and badly dented their 
trustin American leadership. 


Any retreat by 
America from 
global leadership 
is an opportunity 
for China 


In search of a middle way 

As aresult, “middle powers” have been searching for other ways to 
defend the liberal order. A white paper presented last year by Nor- 
ways foreign ministry to its parliament identified preventing the 
erosion of international law and multilateral systems as a “prim- 
ary foreign-policy interest”. In New York, France and Germany 
launched an Alliance for Multilateralism, with the aim of forging 
varied coalitions to take the initiative on issues ranging from fake 
news and responsible use of cyberspace to gender equality and 
strengthening international institutions. 

Coalitions of like-minded countries have proliferated. After Mr 
Trump abandoned the Trans-Pacific Partnership, a free-trade deal, 
Australia, Japan and nine other countries pressed ahead on their 
own. The EU and Japan completed a trade agreement covering a 
third of the world’s GDP. On defence, President Emmanuel Macron 
of France has gathered 13 other countries into a European Interven- 
tion Initiative and is ever keener on “strategic autonomy” for Eu- 
rope. ASian countries worried about growing Chinese assertive- 
ness, and unsure of America’s commitment, are deepening ties. 

In such “minilateralist” or “plurilateralist” ventures, national 
governments are not the only actors. Regional states, non-govern- 
mental organisations (NGOs) and business leaders are on Stage too. 
In the response to covid-19, the Bill & Melinda Gates Foundation, a 
philanthropic giant, is taking a more prominent part than many 
governments. Several American states have been busy since Mr 
Trump withdrew from the Paris agreement. California’s governor, 
Jerry Brown, hosted a Global Climate Action Summit in 2018. Tot- 
ting up actions at subnational levels that collectively would 
amount to the world’s second-biggest economy, one estimate sug- 
gests they could reduce America’s greenhouse-gas emissions by 
2030 by as much as 37% from 2005 levels. 

Whether these scattered mid-level moves can amount to more 
than the sum of their parts is unclear. Michael Fullilove of the 
Lowy Institute, an Australian think-tank, suggests that like-mind- 
ed countries should form a “coalition of the responsible”. Since 
some middle powers, such as Taiwan and South Korea, have dis- 
tinguished themselves by their response to the pandemic, he also 


The Economist June 20th 2020 


proposes “coalitions of the competent”. Further bungling by the 
big powers over covid-19 could make a concert of middle powers 
more urgent. But do not bank on this being a middle-power mo- 
ment, says Kori Schake of the American Enterprise Institute, an- 
other think-tank. Without a dominant power to set an agenda, 
force momentum and provide a chunk of funding, it is very hard 
for co-operation among lesser countries “to reach escape velocity’. 
At best it may slow rather than stop the erosion of the liberal order. 

If middle powers are active, so are smaller ones. By clubbing to- 
gether, even minnows can have influence. Under its charter the UN 
is “based on the principle of the sovereign equality of all its mem- 
bers”, so each of the 193 countries in the General Assembly has one 
vote. India (1.4bn people) counts the same as Tuvalu (12,000). 

The Group of 77, formed in 1964 and now embracing 134 mem- 
bers, pushes the interests of developing countries. It is less ho- 
mogenous than it was but it can have influence (eg, over the choice 
of secretary-general) and get attention (picking Palestine to serve 
as its chair last year). The Alliance of Small Island States helped put 
the climate-change issue on the map. Samantha Power, America’s 
UN ambassador during Barack Obama's second term, madea point 
of visiting her counterparts from every member country at their 
New York missions: she managed all except North Korea's. 

With just six embassies around the world, the diplomatic foot- 
print of the Caribbean state of St Vincent and the Grenadines (pop- 
ulation: 111,000) is tiny, but a good example of small-country influ- 
ence. One of its embassies is in Taipei: it is among a handful of 
States that officially recognise Taiwan. Its mission in New York has 
been expanding, since St Vincent currently has one of the ten non- 
permanent seats on the15-member Security Council. “The bedrock 
principle that all small states advocate for is adherence to interna- 
tional law,’ says Inga Rhonda King, St Vincent’s ambassador. 
They re “very hard core” over sovereign equality, non-interference 
and non-intervention, she adds. The Security Council seat gives 
her a chance to press core concerns (especially climate security 
and relations with Africa) and, hers being asmall country, to do so 
nimbly. Ms King would like to see similar nimbleness in the coun- 
cil’s response to covid-19, drawing attention to Africa as the pan- 
demic’s likely next frontier. & 


Global firefighting | 


Missions impossible 


The UN has too much onits plate 


ANKEUR NDIAYE, a former foreign minister of Senegal who 

heads the UN's peacekeeping mission in the Central African 
Republic (CAR), iS a tall man with a tall task. The peace agreement 
between the CAR and 14 armed groups signed in February 2019 is 
the eighth since 2013, when French intervention narrowly averted 
a genocide. The situation remains fragile ina country that is richin 
diamonds and gold but poor in other respects. Elections loom in 
December. With a budget of $1bn, twice that of the national gov- 
ernment, the UN mission's 12,000-odd soldiers and 2,000 police 
operate across a territory the size of France and Belgium com- 
bined. In some areas the state has no effective presence. The CAR 
has porous borders with other troubled places, such as the Demo- 
cratic Republic of Congo, Sudan and South Sudan. The hope is that 
peacekeepers plus international aid give the brittle state a chance. 


The idea of a non-violent, international military operation was >» 


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The Economist June 20th 2020 


Special report The new world disorder 





>» invented to clear up the Suez mess in 1956, 
with a lot of imagination and improvisa- 
tion (the first “blue helmets” were created 
by spraying the liners of American army 
helmets readily available in Europe). To- 
day, peacekeeping is one area where the Se- 
curity Council operates well. Some100,000 
people from 120 countries serve in 13 mis- 
sions, which range from ceasefire monitor- 
ing in Cyprus and Lebanon to large, com- 
plex operations such as those in the CAR, 
Congo and Mali. The UN claims to protect 
about 125m vulnerable people around the 
world on a budget not much bigger than 
that of New York City’s police department. 

The peacekeepers’ role has expanded 
into supporting fragile states and protect- 
ing civilians. At its best, this is admirable. 
In 2013 the UN opened its military com- 
pounds in South Sudan to tens of thou- 
sands of people fleeing slaughter. “No deci- 
sion taken since 1945—at any level in the 
UN—ever resulted in the direct saving of 
more lives than that one,” believes Andrew 
Gilmour, until last December the UN’s as- 
sistant secretary-general for human rights. 

But the peace business is getting harder. 
The blue helmets’ job used to be to preserve 
stability after a settlement. “Now you have 
peacekeeping forces in areas where there is 
no peace at all to keep,” says Mr Guterres. In 
Congo, for example, rebels hiding in the 
forests close to the north-eastern city of 
Beni frequently abduct people and hack 
them todeath with machetes. Protests 
against MONUSCO, the UN peacekeeping 
mission, are common. “The rebels are kill- 
ing us, if you cannot kill them, then go 
home,” says Kizito bin Hang, a civil-soci- 
ety leader in Beni. When eight people were 
killed less than 2km from MONUSCO’'s of- 
fices last November, a protest the next day 
got out of hand. Furious civilians tossed in 
Molotov cocktails, setting the place on fire 
and sending staff fleeing. Today, the former 
offices consist of some blackened bricks, 
strewn around a grassy field. 

The changing nature of conflict doesn’t 
help. Wars between states, which the UN 
was Set up to stop, have become rare. Most 
fights are now within countries, often involving many parties. The 
humanitarian consequences are disastrous. The number of inter- 
nally displaced people has more than doubled in a decade to a re- 
cord 51m, according to the Norwegian Refugee Council. Of those, 
46m have been displaced within their own countries by conflict 
and violence. Civil wars are especially difficult to stop through ne- 
gotiation, since laying down arms can seem too risky. 

Many organisations are crowding in to help. The art of peace is 
increasingly the art of partnerships, with the likes of the African 
Union, the World Bank and the European Union. Private diplo- 
macy is also on the rise, as groups such as the Centre for Humani- 
tarian Dialogue (HD) in Geneva or the Berlin-based Berghof Foun- 
dation try to build bridges where official channels are missing or 
mistrusted. Both the UN and private outfits are striving to get more 
women involved, to make peace work more inclusive. 





In spite of these efforts (and sometimes because of them, as the 
many actors trip over one another), frustration abounds. Conflicts 
are Still starting, but big new peace agreements have become rarer: 
only seven or eight in the past decade, says David Harland of HD, 
compared with 30 or so in the 20 years after the fall of the Berlin 
Wall. In the Middle East since 201 a succession of UN envoys— 
three in Yemen, four in Syria and six in Libya—have tried to resolve 
civil wars, without success. Well-intentioned mediation can end 
up favouring one side over others. In Syria, for example, local 
ceasefires gave President Bashar al-Assad a chance to regroup. 

Mr Guterres has tried to leverage the pandemic for peace. On 
March 23rd he called for a global ceasefire, to fight the virus. A sur- 
prising number of armed groups seemed interested in an excuse to 
give talks a chance. In Yemen the Saudi-led coalition announced 


and then extended a unilateral ceasefire. In Afghanistan, for the >> 


3 Special report The new world disorder 


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» first time in years, the UN convened a digital meeting of the Afghan 
government and six neighbours plus America and Russia (a “six 
plus two” formula that also brought Iran and America around the 
same table). But war persists in Afghanistan, and ceasefires in Co- 
lombia and the Philippines were broken. And, as America and Chi- 
na squabbled over the wording of a resolution, the Security Coun- 
cil failed to throw its weight behind the initiative. 

If ending conflicts has become tougher, what about tackling 
their causes and consequences? That opens vast vistas for helping 
humanity. Perhaps too vast. 

The short-term task is humanitarian relief, whether from man- 
made or natural disasters. That job—feeding the hungry, housing 
refugees, protecting health—is huge. Last year about $18bn in hu- 
manitarian funding, some 70% of the world’s total, was chan- 
nelled through the UN, estimates Mark Lowcock, the UN’s emer- 
gency-relief co-ordinator, helping more than 100m _ people. 
Roughly 60% of the money comes from America, Germany, Britain 
and the Eu. China provides very little. 


The long and the short of it 

Early this year extra troubles loomed, with the assault on Idlib in 
Syria aS well as locusts swarming across Africa. Now covid-19 
threatens to multiply the misery. Mr Lowcock suggests that hu- 
manitarian relief this year may need to rise by 20% or so; and per- 
haps $6o0bn in cheap finance from international financial institu- 


The clock is ticking for nuclear arms control 


The Economist June 20th 2020 


tions should be targeted at social protection. He believes this could 
largely protect 700m people across several dozen of the world’s 
poorest and most vulnerable countries. It could also help to pre- 
vent a one-year problem from becoming a ten-year one. 

Acting early makes sense, and not just over covid-19. Rigidities 
in funding (much of which is tied to specific programmes) restrict 
Mr Lowcock’s room for manoeuvre, but he is keen to get ahead of 
crises through risk pooling and smart use of data. He reckons that 
some 10% of global emergencies, including hurricanes and 
droughts, are insurable. And a further 10-15% are to some extent 
predictable. More effort on “anticipatory action” would mean 
achieving cheaper, faster responses with less suffering. 

In Bangladesh, for example, giving money to people early to get 
out of the way of floods has proved to be efficient. Some scientists 
think they can predict outbreaks of cholera in Africa before a single 
case is recorded, once a threshold is reached in trigger metrics; 
early action could greatly reduce the damage. Mr Lowcock would 
like to experiment with a commitment to release money against 
pre-agreed problems that lend themselves to this approach. “You 
can be wrong on alot,’ he says, “and it can still make sense.” 

In the medium term, attention turns to the Sustainable Devel- 
opment Goals (SDGs), a set of aspirations in 17 broad categories 
(with 169 targets) agreed upon by the UN General Assembly in 2015 
and meant to be achieved by 2030. They make a comprehensive list 


of human development, covering everything from ending poverty >> 


IME IS RUNNING out for the last re- 

maining nuclear arms-control treaty 
between America and Russia. New START 
limits their arsenals of long-range nukes 
and allows intrusive mutual inspections. 
Without agreement to extend it, the 
treaty will expire on February 5th 2021. 

That is not the only reason why the 
five-yearly review of the 50-year-old 
Nuclear Non-Proliferation Treaty, sched- 
uled this spring but postponed because 
of covid-19, promises to be bitter. Nuclear 
have-nots complain that the P5 countries 
permitted to have nukes are not keeping 
their side of the bargain, to work in good 
faith towards giving them up. Nuclear 
fears are rising. Whether through mis- 
calculation or otherwise, the riskofa 
nuclear detonation is at its “highest since 
the peak of the cold war”, warns Naka- 
mitsu Izumi, the UN’s undersecretary- 
general for disarmament. 

Donald Trump has pulled out of the 
nuclear deal with Iran. His nuclear sum- 
mitry with North Korea has stalled. If 
constraints are seen to be failing, more 
countries may feel tempted to go nuc- 
lear. Turkey's Recep Tayyip Erdogan has 
mused aloud about it. Seeking to occupy 
the moral and legal high ground, more 
than 80 countries have signed a Treaty on 
the Prohibition of Nuclear Weapons, 





_ Deployed 































































































| North Korea 


| Source: SIPRI 


which will come into force once 50 have 


_ ratified it. The nuclear haves will ignore it. 


Even during the cold war America and 
Russia managed to reach nuclear deals. 
They signed their first such treaty, SALT I, 
in1972. But recently accords have been 
falling apart. The Intermediate-range 
Nuclear Forces Treaty collapsed last Au- 
gust, because of Russian cheating. New 
START'S demise would open the way fora 


new nuclear arms race, amid worries about 


emerging threats from hypersonic weap- 


TT 


Stocked and loaded 
Estimated global nuclear warheads, 2020, 000 





© Stockpiled* 


Russia 
France 
Britain 
China 
Pakistan 
India 


Israel 


*Stored or reserve warheads and retired 
warheads awaiting dismantlement 





ons. This comes on top of growing con- 
cerns about future conventional systems 
controlled by artificial intelligence. 

Russia Says it wants to extend New 
START, but Mr Trump dislikes the treaty, 
partly because it was signed in 2010 by his 
predecessor, Barack Obama, and more 
reasonably because it does not restrain 
China, which has asmaller nuclear arse- 
nal but one that is getting larger and 
fancier. Mr Trump favours a bigger treaty, 
including China. His arms-control envoy, 
Marshall Billingslea, has said that, if 
Russia wants an extension, it must bring 
China to the table. But China shows no 
interest in letting itself be tied down. 
Some suspect that Mr Trump’s insistence 
on three-way talks is a poison pill, allow- 
ing America to engage in a nuclear race 
that hawks think it would win. 

New START can be extended for five 
years by mutual agreement (with no need 
to ask Congress). Arms-control advocates 
say this would buy time for a wider future 
deal involving China, and perhaps in- 
cluding all types of nukes. Russia might 
insist that the smaller British and French 
arsenals be counted in any such negotia- 
tions, if limits on the numbers of weap- 
ons were reduced much further. There is 
plenty here for the P5 to work on, if they 


- could only get round to it. 


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The Economist June 20th 2020 


SY oJ =Fol F-] a) ole) aad Malem aly mela (e ele) cel-1e 





>and hunger to fighting inequality and pollution. If all the goals 
were achieved, humanity would be happy. But in many areas they 
are badly behind schedule, and covid-19 will set them back further. 
This year, for the first time this century, the proportion of peoplein 
extreme poverty is expected to grow, wiping out almost all the 
gains of the past five years, if not more. The SDGs are anyway more 
of acall to action than a realistic plan. In that vein, the UN is cam- 
paigning fora “Decade of Action” to honour these promises. 

Mr Guterres started as secretary-general by emphasising crisis 
prevention, but this has proved heavy going, given the divisions 
among the big powers and the growing complexity of conflicts. 
The climate crisis has since come to the fore, both because of its in- 
trinsic, long-term importance and because it seems to offer the UN 
a Way to resonate with young people. In New York last September 
Mr Guterres organised a climate-action summit. Greta Thunberg,a 
teenage Swedish activist, warned leaders that “young people are 
Starting to understand your betrayal”. 

The pandemic has meant the postponement of the cop26 cli- 
mate summit in Glasgow (as well as a biodiversity summit in Kun- 
ming and an ocean conference in Lisbon), to which countries were 
meant to bring bolder national commitments to cut carbon emis- 
sions. But the delay has a green lining. Mr Guterres has tried to link 
the twin crises, arguing for policies that ensure that the recovery 
from covid-19 helps to save the planet. 

On Earth Day, April 22nd, he proposed a six-point framework to 
that effect. His suggestions are extremely broad—tie business res- 
cues to creating green jobs, for example, end fossil-fuel subsidies 
and, unsurprisingly, “work together as an international commu- 
nity’ —but they are a taste of a campaign to come. Advocacy of 
drastic climate action has become something of a rallying cry for 
the UN. As Richard Gowan, UN director at the International Crisis 
Group (ICG), an NGO, points out: “UN optimists are mostly people 
with the bleakest view on climate, because they imagine it’s what 
draws the UN back together.” 

Has Mr Guterres got his priorities right? The criticism that 
stings most is personal. It is that the secretary-general puts poli- 
tics over core principles and pulls his punches in an area that is 
neither short-, medium- nor long-term but timeless: human 
rights. Mr Guterres is accused of failing to defend the charter 
(which commits the UN to promote “universal respect for, and ob- 
servance of, human rights”) by speaking out against abuses by 
powerful governments, including China’s detention of Uighurs 
and Saudi Arabia’s murder of Jamal Khashoggi, a critic of the re- 
gime. Some predecessors, such as Kofi Annan, were more forceful. 
Even the often invisible Ban Ki-moon launched Human Rights up 
Front, a campaign to insert the issue across the UN’s work. Zeid 
Ra’ad al-Hussein, a former UN human-rights commissioner, has 
condemned Mr Guterres’s “weakness”. Kenneth Roth, head of Hu- 
man Rights Watch, an NGO, has warned that his term was becom- 
ing “defined by his silence on human rights’. 

Mr Guterres’s defenders say such attacks are unfair. He has 
picked his moments to speak up in public, whether on Uighurs in 
China or Rohingyas in Myanmar, and has championed women’s 
rights, within the UN and beyond. Yes, he avoids confrontations 
that would be counter-productive (he never criticises Donald 
Trump by name, for example). But this gives him the ability to de- 
liver a strong message behind the scenes. What powder he has 
must be kept dry. “At the UN there is practically no power at all,’ he 
says. “When you re in government you have some power. Here it’s 
basically a bluff, or an illusion.” 

A second, broader, criticism of the UN is that it simply does too 
much. It is, in effect, trying to save the world several times over. Its 
many aims may be wonderful, and interconnected, but it lacks the 
capacity to pursue them all effectively. It has taken on more than it 
was designed for. And the design itself needs a fresh look. @ 





Grand redesigns 


The structures built in 1945 are not fit for 2020, let alone beyond it 


447 F YOU DIDN'T have the UN you really would have to reinvent it,” 

| Stephen Schlesinger, author of a history of its founding. 
Maybe, but nobody in their right mind would design it as it exists 
today. Insiders complain of a tangle of overlapping agencies, 
senseless silos and barricaded budgets. “If you locked a team of 
evil geniuses in a laboratory, they could not design a bureaucracy 
so maddeningly complex,’ one departing official despaired. Out- 
siders face a forbidding confusion of agencies with acronyms. 
Many do great work (WFP and UNHCR), others have a mixed record 
(WHO and FAO), a few are useless (UNIDO). And at the top the struc- 
ture reflects the world of 1945, as if little had changed since. 

This was not what the founders envisaged. Hailing the charter, 
Truman said it had “not been poured into a fixed mould”, but 
would be adjusted in line with changing conditions. In fact the 
only changes have been minor ones, to take account of the growth 
of UN membership. In 1965 the Security Council expanded from 11 


members to 15. But whereas it included 22% of General Assembly >> 


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>» members in 1945, it now has just 8%. Its 
veto-wielding P5 remain the victorious 
powers of 75 years ago, with no representa- 
tion from Latin America, Africa or South 
Asia. Without change, the legitimacy gap 
will only grow. 

This might matter less if the council 
were working effectively, but it is not. 
There have been worse periods. In 1959 the 
council passed just one resolution, to ap- 
point a committee to report on Laos. “By 
historical standards, this is still a reasonably active institution,’ 
says Mr Gowan of the Ica. But it is increasingly crippled by great- 
power rivalry. The relationship between the three biggest powers, 
America, China and Russia, “has never been as dysfunctional as it 
is today,’ says Mr Guterres. 

Veto use has risen. In the past five years Russia has wielded 14 
vetoes, China five and America two (Britain and France have re- 
frained from using theirs since 1989). In response to the Ebola cri- 
Sis in west Africa in 2014 the Security Council passed a resolution 
calling the outbreak “a threat to international peace and security”. 
Over covid-19 it dithered for weeks and then struggled to agree toa 
resolution calling for a 90-day pause in hostilities in conflict-rid- 
den countries, as China and America quarrelled over whether to 
refer to the WHO (China said yes, knowing America would Say no). 
Instead of putting momentum behind the secretary-general’s 
ceasefire appeal, the council stayed paralysed. 

Its credibility is slipping. The arms embargo on Libya is ig- 
nored. Russia's behaviour is a big worry. “The existential problem 
is that countries respect the decisions of the Security Council less 
and less,” says Karen Pierce, until recently Britain’s ambassador at 
the UN, now its ambassador in Washington. Normally the P5 is 
there to uphold the rules, says Ms Pierce, but, referring to Russia’s 
support for Syria, “for a P5 member to think it’s OK to condone the 
use of chemical weapons is quite a major shift.” 

Could reform help? To ensure that the council remains repre- 
sentative, suggests Stewart Patrick of the Council on Foreign Rela- 
tions, an American think-tank, “ideally you'd have something like 
the Premier League, with relegation and promotion.’ But try agree- 
ing ona formula. For over a decade, an intergovernmental group at 
the UN has grappled with how the council might take in more 
countries. Which ones? Should they be permanent with a veto, or 
non-permanent without one? Or perhaps something in-between, 
with longer non-permanent terms? 

A group of four (G4) countries with the strongest claims to the 
top table—Brazil, Germany, India and Japan—are keen to get a 
move on. Africans see it as a historical injustice that they did not 


If new permanent 
members were 
agreed to, a 
bigger Security 
Council might not 
be more effective 


EE 


Axis of No 
United Nations Security Council, number of vetoes 





(is 
® United States - 
© Britain 

| France 
W USSR/Russia d 
B® China* 
6 
3 
ii 
| 0 


1945 50 55 60 65 70 75 80 85 90 95 2000 05 10 15 19 


Source: United Nations *Beijing government took over China's membership in 1971 


The Economist June 20th 2020 


get a permanent seat at the outset, but their own rivalries stop 
them specifying which countries they would pick, so they stick 
with an overall demand for two permanent seats plus an expan- 
sion of non-permanent ones. Another group of a dozen countries 
wary of the G4, including Argentina, Italy, Pakistan and South Ko- 
rea, argue against expansion of permanent members and instead 
want more non-permanent ones. One approach could be to look at 
non-permanent ones first, and come back to the permanent ones 
later. But the G4 resist this as a recipe for denying their claims. 

In this process, you get “some of the most creative, passionate, 
articulate speeches that I see permanent representatives give,’ 
says Lana Nusseibeh, the United Arab Emirates’ ambassador to the 
UN, who co-chairs the intergovernmental group, “because this is- 
sue speaks to their core national interests.” And even if new per- 
manent members were agreed to, a bigger Security Council might 
not be more effective. Any change needs an amendment of the 
charter, which requires the votes of two-thirds of the General As- 
sembly and the approval of the current P5. In short, many stars 
would have to align. In the meantime, lesser changes could help. 
For example, many would like the Security Council to become 
more transparent in its work. 


To be the very model of a modern multilateral 

In the UN secretariat itself, reform is alsoa hard slog. Power rests in 
the member countries, which limit freedom of manoeuvre, not 
least over the budget. The regular budget of about $3bn (there isa 
Separate one for peacekeeping) relies on national contributions, 
assessed through a formula based largely on economic size. Amer- 
ica’s share, at 22%, remains the biggest, though China's has risen 
fast, overtaking Japan’s. Once the budget is set, countries are sup- 
posed to pay up within 30 days. But roughly 30% of the money 
comes in the final two months of the year, creating the risk of a 
cash crunch in September, just when the UN hosts its General As- 
sembly. It has a reserve of only about $350m and is not allowed to 
borrow. Last year escalators were switched off for a while at the 
New York headquarters to conserve cash. Earlier this year pay- 
ments for peacekeepers were delayed. 

Worse still is the budget’s rigidity. Bosses cannot use savings in 
one area to spend in another. Decisions have to go laboriously 
through the bureaucracy, with scrutiny from something called the 
Fifth Committee and a fun-sounding Advisory Committee on Ad- 
ministrative and Budgetary Questions. Even moving a mid-level 
post requires the unanimous approval of all193 countries. “It’s cra- 
zy that the secretary-general doesn’t have more flexibility,’ says 
one Western diplomat on the Fifth Committee. 

Mr Guterres has sought to break down silos and improve co- 
ordination. But the pandemic has shown the need for a stronger 
form of governance, he believes. “Today we have a multilateralism 
that has no teeth,’ he says, “and wherever there are teeth, as in the 
Security Council, there is no appetite to bite.” Multilateralism 
needs to evolve in two ways, he argues: it must become more “net- 
worked” and more “inclusive”. By networked he means working 
closely with other organisations, to achieve joined-up action on 
interconnected issues affecting a specific region or problem. 

Take the Sahel. No single organisation can tackle its inter- 
twined security, development and political troubles. Collabora- 
tion is needed with the African Union, the African Development 
Bank, the World Bank and other institutions. The UN’s co-opera- 
tion with the Au is “fantastic in all areas”, Mr Guterres says, and 
that with the World Bank and IMF deeper than ever. So he reckons 
this side of things is already on track. But inclusivity is not. Na- 
tional governments that control multilateral institutions resist 
letting businesses, trade unions, NGOS, cities and regional admin- 
istrations have any voice. Mr Guterres is using the 75th anniversary 
as an excuse for a campaign to open up global governance. @ 


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Reflections at 75 


The wisdom of youth 


Mobilising for the next quarter-century 


UCKILY, GIVEN the pandemic, the UN did not plan a boastful 

birthday. Instead, it decided to ask what the world thinks. It has 
launched an effort to to gather views from everywhere, in the spirit 
of the opening words of its charter, “We the peoples”. 

With the help of a mass online survey, in-depth polling across 
50 countries, hundreds of live “dialogues” and a trawl of research, 
the plan is to find out what people would like to see 25 years from 
now, when the UN reaches 100. The views of young people area 
special focus. Half the world’s population is under 30, points out 
Jayathma Wickramanayake, the secretary-general’s youth envoy, 
yet they have little say in how itis run. 

The aim of UN75 is “to give a vitamin shot to what at times feels 
like quite a fatigued enterprise and come up with new ideas,’ says 
Fabrizio Hochschild, the official in charge. The results will be pre- 
sented to the General Assembly in September. Preliminary find- 
ings released in April suggest the world thinks pretty much what 
the UN was hoping. The priorities were environmental protection, 
human rights, less conflict, equal access to basic services and zero 
discrimination. Fully 95% of survey respondents thought interna- 
tional co-operation was “essential” or “very important” (the num- 
ber ticked up as covid-19 took hold). As for how co-operation might 
work better, ideas included a more bottom-up approach, more ef- 
fective partnerships and more involvement of women, young peo- 
ple and the vulnerable. 

All this aligns nicely with themes the UN hopes to use to 
breathe life into the “inclusive” multilateralism that Mr Guterres 
espouses. On climate change, it wants business, finance, NGOs, 
youth movements and others to pile pressure on governments to 
make more ambitious carbon-cutting pledges at the cop26 climate 


Summit in Glasgow next year. Beyond that, the green theme will 
run and run. The covid-19 crisis will pass, but the climate one will 
remain a priority for years to come. 

Gender equality is a second test. The UN Is trying to lead by ex- 
ample. Half the 180 senior leaders in its secretariat were women at 
the start of this year, up froma third three years ago. Achieving par- 
ity out in the field is harder. In peacekeeping operations the aim is 
for at least a quarter of military observers and staff officers to be 
women by 2028, compared with 15% last year. Overcoming resis- 
tance from governments is harder still, so the UN is trying to build 
alliances with businesses, NGOs and local authorities, to achieve 
change from the bottom up. 


You say you want a revolution 

A third area that lends itself to innovative efforts is digital. The 
pace of change is such that regulation struggles to keep up. If gov- 
ernments take years to negotiate agreements and even more to rat- 
ify them, by the time rules are ready the real world (and even more 
the virtual one) has moved on. The UN favours a nimbler way, in- 
volving not just governments but companies, research centres and 
NGOS ina form of soft regulation to exchange best practices and set 
boundaries for new technologies such as artificial intelligence. Mr 
Guterres set up a high-level panel, co-chaired by Jack Ma and Me- 
linda Gates (philanthropists of, respectively, Alibaba and Micro- 
soft fame), to draw up a report on digital interdependence. Work- 
ing groups on digital human rights and digital public goods have 
picked up its recommendations. In this “new multilateralism”, 
says Mr Guterres, what was once done only by governments is now 
done through “permanent platforms of co-operation, with a 
multi-stakeholder approach”. 

Inclusive multilateralism has other attractions. The UN, which 
has the convening power to bring parties together, sees a chance to 
play a leading role. Wider participation could deepen trust, and 
give more opportunities to hold governments to account. Flexible 
approaches could also help tackle other frontier issues that are 
likely to grow in importance, such as the interface between Earth 
systems and the international system (the recent clash over the 
Amazon between the Brazilian and French presidents may be a 
foretaste) and the governance of everything from genetic engi- 
neering and new weaponry to the ocean and space. 

Multi-stakeholder initiatives are not new. Various sorts have 
proliferated in recent years, whether to chivvy particular sectors 
(the Extractive Industries Transparency Initiative or the Round- 
table on Sustainable Palm Oil), run the internet (ICANN) or im- 
prove government (Open Government Partnership). But inclusive- 
ness is not a panacea. It raises accountability issues of its own. A 
bigger role for businesses and NGOs sounds good, but they don't 
answer to voters. Some initiatives find it easier to issue broad pleas 
for good behaviour (like the Paris Call for Trust and Security in Cy- 
berspace) than to produce rules, let alone ensure compliance. In 
authoritarian countries it is not easy to include voices from civil 
society; one tactic in China's efforts to influence international or- 
ganisations, according to the CNAS study, is the creation of “gov- 
ernment-organised non-government organisations’, Or GONGOS. 

And for all the good intentions of the secretary-general’s panel 
on digital interdependence, the biggest development is the stand- 
off between America and China over technology, amid arguments 
over who will dominate the next generation of telecoms infra- 
structure and fears that a “splinternet” of rival digital spheres is in 
the making. The covid-19 crisis has reinforced the power of states, 
from massive intervention in economies to monitoring people’s 
movement. Opening up the multilateral system to more voices is 
welcome, but as the UN looks ahead to life at 100, it is govern- 
ments—especially the big beasts among them—that will still 
shape the future world order. @ 


12 BS)c-.oF 1 a=) olela an al-mal-\i ma nelace mele) ae (16 


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Three future scenarios 


Bedlam, bumbling 
or boldness? 


Time to rediscover statesmanship 


N ASPEECH in January Mr Guterres conjured up “four horsemen” 

to describe the challenges facing the world. The first represented 
the worst geostrategic tensions in years, with a real risk of a “great 
fracture”. Next, said the secretary-general, the planet was burning, 
and an existential crisis was close to a point of no return. His third 
horseman took the form of rising global mistrust, often spilling 
into hatred, amid discontent over inequality and the sense among 
too many that globalisation is not working. Lastly, the dark side of 
digital technology threatened to invade privacy, disrupt work and 
unleash lethal autonomous machines in war. 

If this was not apocalyptic enough, a fifth horseman Is now gal- 
loping around the globe. Covid-19 has claimed hundreds of thou- 
sands of lives and plunged the world into a recession far deeper 
than that of 2008-09. Worse could be to come if the virus proceeds 
to devastate poorer countries before boomeranging back into rich 
ones. And in response the world has seemed rudderless. National 
leaders have been too preoccupied fighting the disease in their 
own countries to have much appetite for international efforts. And 
at the UN, the Security Council has been a bystander. 

The nightmare scenario is a descent into deepening disorder. 
Imagine that after the covid-19 crisis is 
over, Mr Guterres’s horsemen run ram- i 
pant. Any hope that the world can sum- 
mon the will to tackle climate change Just possibly, 
vanishes. Under pressure, institutions gy¢raordin ary 
that have sustained a rules-based system 


buckle. Unrestrained protectionism kills times could 
the wro. America abandons NaTo, as its _ provide the jolt 
European partners slash defencespending the world needs 
to prioritise economic recovery. Divisions +9 be bolder 


between northern and southern members 

prove too much for the EU. The UN goes the 

way of the League of Nations, failing to stop rival powers from 
provoking each other and, in the end, fighting. 

While such bedlam is possible, a likelier scenario is less dra- 
matic: bumbling along. Inertia helps the main multilateral institu- 
tions survive, despite their inability to modernise themselves, and 
second-tier powers keep co-operation alive. Future American 
presidents restore a degree of confidence in the country’s commit- 
ment to the international order, although the trauma of transac- 
tional Trumpism casts along shadow. America’s return to the Paris 
agreement lends weight to efforts to tackle climate change. 

The tussle between America and China continues. But America 
makes a more concerted counter-push, working with its European 
and Asian allies, with a revived championing of universal values. 
In many parts of the world mistrust of China runs deep. Russia still 
makes mischief, but less often, since a more coherent West gives it 
fewer opportunities. The multipolar system becomes less “chaot- 
ic’ and more contained, settling into an uneasy stalemate. Perhaps 
this is enough to keep the four horsemen in their stables. 

Bumbling along in this way would not be the worst outcome. 
But it would be a waste of a crisis. Just possibly, extraordinary 
times could provide the jolt the world needs to be bolder, even if 
for now this seems improbable. Little or no global leadership can 
be expected from America under Mr Trump. The pandemic has 


The Economist June 20th 2020 


pushed most other issues aside: planned gatherings on big global 
issues, such as climate change and nuclear non-proliferation, 
have been postponed. Yet the delay may be a blessing in disguise, 
giving fresh thinking a chance. 

Already, some see opportunities ahead. In Europe Mr Macron is 
alive to the idea that the time may become ripe for big ideas. Brit- 
ain’s Boris Johnson always welcomes a chance to play Churchill. 
Ideas for making the post-covid-19 economy greener are sprout- 
ing, aS are concerns to make it fairer. Perhaps China could be per- 
Suaded to take part in a new round of nuclear arms control, which 
could serve as a Start to rebuild relations with Russia. 

Global organisations have a shot at change, too. Just as the sec- 
ond world war prompted leaders to create institutions to prevent 
wars, Bill Gates believes the covid-19 crisis will lead them to build 
institutions to prevent pandemics and, alongside national and re- 
gional bodies, to guard against bioterrorism. Co-operation on vi- 
ruses could serve as a model for collaboration to strengthen resil- 
ience in cyberspace. The shock to the system could even be 
profound enough to prompt a serious go at reforming the UN Secu- 
rity Council before it grows even less representative of the realities 
of power in the 21st century. Ample groundwork has been done. 
What is missing is political will. 


Let's go to San Francisco 

None of this can happen overnight. A start could come from a P5 
Summit, with a further push at the 75th-anniversary meeting of 
the Global Assembly in September. Because of the pandemic, this 
will be a more limited affair than originally envisaged, perhaps 
with a mix of physical and virtual presence, but it can still dignify 
the occasion and show a worldwide wish for closer collaboration. 
It should also be an opportunity to look ahead, mapping the way to 
reforms designed to ensure that the UN is still in business at1oo. 

If the wartime model were followed, the road might even lead 
toa grand convention, as in San Francisco 1n1945. The main actors 
at that conference were the delegates of the governments in- 
volved, especially the big powers. But in all—counting the secre- 
tariat workers, the press, interpreters, security personnel and as- 
sorted lobbyists and observers—about 5,000 people crowded into 
town, in a foretaste of the General Assembly that clogs New York 
every September. “Consultants” representing industries, labour, 
religions, professions, women and minorities were accredited. 
They managed to influence the charter on education and human 
rights, and successfully pushed for an article allowing the UN’s 
Economic and Social Council to consult NGos. A rethink of the 
rules ought to be even more inclusive. 

Such a prospect looks far-fetched when the world is consumed 
by the fight against a virus, and when America and two other big 
powers are waging a new cold war. But in the midst of the second 
world war it was hard to imagine that institutions would emerge 
that would keep the peace for three-quarters of a century. The 
statesmanship that created them is now needed once again. @ 


ACKNOWLEDGMENTS A list of acknowledgments and sources is included in the online version 
of this special report 


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Poland's election 


Playing the family card 


WARSAW 


President Andrzej Duda says gay ideology is worse than communism 


OLES WILL go to the polls on June 28th to 
Prete for their next president, a mostly 
ceremonial position but with the crucial 
power to veto laws. The election will be the 
latest popularity contest between the rul- 
ing populist Law and Justice (Pis) party and 
the centrist Civic Platform, which gov- 
erned from 2007 to 2015. Pis lost ground in 
parliamentary elections last year, and it 
looks as though the contest will go toa run- 
off on July 12th. 

The two candidates, barring a big sur- 
prise, will be Andrzej Duda, the pis-backed 
incumbent, and Rafal Trzaskowski, War- 
Saw’s mayor, who joined the race at the last 
minute. If the liberal, pro-European Mr 
Trzaskowski beats Mr Duda, his supporters 
will surely greet it as the beginning of the 
end of Pis rule. 

This will be Poland’s second shot at 
holding an election during the covid crisis, 
after the original exercise set for May was 
called off. Mr Duda faces five main chal- 
lengers, all men, ranging from the centre- 
left to the nationalist far-right. Like Mr 
Duda they all came of age after 1989, a gen- 


erational shift in Polish politics which has 
long been dominated by politicians shaped 
by the struggle against communism. 

Mr Trzaskowski joined the race after 
Civic Plaform’s previous candidate, Mal- 
gorzata Kidawa-Blonska, pulled out in 
mid-May after a lacklustre campaign in 
which support for her dropped to single 
digits. On paper, he and Mr Duda are re- 
markably similar. Both were born in 1972; 
Mr Duda to a pair of academics in Krakow 
and Mr Trzaskowskiin Warsaw, thesonofa 
jazz composer. Both have doctorates and 
served as members of the European Parlia- 
ment. (Mr Trzaskowski also served as Eu- 
rope minister in 2014-15.) 

Yet their politics have placed them on 
opposite sides in the bitter struggle be- 
tween Pis and Civic Platform that has 
gripped the country since the mid-2000s. 
Mr Duda’s unexpected election as presi- 
dent in 2015 paved the way for Pis’s return 
to power later that year after eight years in 
opposition (he resigned from the party 
after his victory). Three years later, Mr 
Trzaskowski's victory in the Warsaw may- 


~ Also in this section 

42 Belarus's slipper revolt 

43 Why furlough works 

43 The trouble with rural France 


44 Charlemagne: How a dining club took 
over the EU 


oral election, crushing the Pis candidate, 
showed the limits of the ruling party’s 
brand of populism. 

Mr Trzaskowski won in Warsaw by ap- 
pealing to liberals. Soon after taking office 
he signed a declaration in favour oflesbian, 
gay, bisexual and transgender (LGBT) 
rights, with proposals including a shelter 
in Warsaw, anti-discrimination measures 
and more sex education in schools. This 
led toa backlash from Pis, supported by the 
Catholic church. Poland faces an “attack on 
the Polish family”, warned Jaroslaw Kac- 
zynski, the party’s leader. 


Beating them at their own game 
This time Mr Trzaskowski is casting his net 
wider. He is appealing to moderate conser- 
vatives tired of Pis’s radical streak and its 
disregard for checks and balances (espe- 
cially judicial ones), which the European 
Commission has warned undermines the 
rule of law. “Conservatism rejects radical- 
ism, conservatism rejects nationalism,’ he 
told a crowd in Krakow, Mr Duda’s home- 
town, on June 6th. He has also pledged to 
support the Pis government on matters of 
State interest. The president cannot be in 
“total opposition” to the government, he 
says. However Pis does not have nearly 
enough seats in parliament to override a 
presidential veto, which could well be ap- 
plied on a number of other issues. 
Suddenly on the defensive, Mr Duda is 
trying to mobilise socially conservative 


voters by presenting himself as the defend- >> 


The Economist June 20th 2020 fi) 


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42 Europe 


> er of the traditional family (56% of Poles 
oppose gay marriage and 76% are against 
adoption by same-sex couples, according 
to a poll last year). LGBT is an “ideology” 
worse than communism, he told suppor- 
ters on June 13th in Brzeg, a town in south- 
western Poland. A “Family Card” of policies 
presented by him last week includes con- 
tinuing hefty handouts for children intro- 
duced by Pis and not allowing gay couples 
to marry or adopt. He has been supported 
by the _ public-television broadcaster, 
which Pis took over shortly after it came to 
power in 2015. “LGBT ideology is destroying 
the family,” read a caption on its evening 
news programme also on June 13th. 

Since Poland’s rapid and strict lock- 
down in mid-March, the government has 
eased most of its coronavirus restrictions. 
Infections remain lower than in many 


Belarus 


The slipper revolt 


European countries (30,701 cases and 1,286 
deaths, according to official figures from 
June 17), despite some recent new out- 
breaks among coal miners. The govern- 
ment has introduced measures to protect 
businesses and workers from the eco- 
nomic effects of the epidemic, including a 
100bn zloty ($25bn, or around 4.5% of GDP) 
support package for local firms. 

Mr Duda continues to lead in the polls, 
but the distance between him and Mr 
Trzaskowski is narrowing. One poll con- 
ducted on June 12-13th gives him 40.7%, 
ahead of Mr Trzaskowski’s 28%, with the 
other candidates below 10%. With no can- 
didate above 50%, a run-off seems inevita- 
ble. The polls suggest that it will be close. 
The winner will not only claim the presi- 
dential palace, but shape whether Poland 
becomes more open or closed. @ 


Europe’s last dictator faces a wave of discontent 


HEY CAME wielding slippers, with 
Towhich to squish the man they call “the 
cockroach”. Alexander Lukashenko, an 
idiosyncratic autocrat, has retained many 
of the oppressive structures and symbols 
of the Soviet Union in Belarus for the past 
quarter-century. But as the country heads 
towards a presidential election on August 
oth, there are signs that the long-preserved 
edifice is crumbling. 

After years of economic stagnation and 
falling incomes, discontent is as wide- 
Spread as it was in the early 1990s. That ear- 
lier wave of protest swept Mr Lukashenko, 
a former collective-farm boss, to power. 
Since then he has kept winning elections 
with a mixture of populism, paternalism, 
repression and subsidies from Russia. How 
many Belarusians really support him is un- 
known—he has banned independent opin- 
ion polls. However, a hint of his unpopu- 
larity can be found in the fact that people 
are queuing for hours to nominate some- 
one else as a presidential candidate. 

Mr Lukashenko’s handling of covid-19 
has been almost comically inept. He dis- 
missed it as a “psychosis”. He urged people 
to protect themselves by drinking vodka, 
driving a tractor and steaming in a banya 
(Sauna). He staged a military parade on May 
oth, claiming “it is better to die on your feet 
than live on your knees.” Now he wants a 
sixth term in Office. 

Belarusians have largely ignored his ad- 
vice. Many wear face masks and maintain 
social distance. Volunteers have raised 


money to buy protective gear for doctors 
and kit for hospitals. “Who else, if not us?” 
read a post on the volunteers’ Facebook 
page. Private businesses have joined in. 
The energy generated by all this activism 
has flowed into politics, says Franak Via- 
corka, a Belarusian journalist. 

Sergei Tikhanovsky, a former business- 
man and vlogger, saw an opportunity. He 
launched a movement called “A country for 
life”. Mr Tikhanovsky is a charismatic pop- 
ulist, sometimes likened to Volodymyr Ze- 
lensky, a former TV comedian who is now 


Se 


2 
The president really bugs them 


The Economist June 20th 2020 


the president of Ukraine, and Alexei Na- 
valny, a blogger turned opposition leader 
in Russia. Mr Tikhanovsky vowed to “stop 
the cockroach”, as he called Mr Lukashenko 
(alluding to his moustache, which makes 
him look like a character in a children’s 
poem called “The Mighty Cockroach”). Mr 
Tikhanovsky tied a giant slipper to the roof 
of his car—a popular weapon for splatting 
pests of the order Blattodea—and drove 
around the country talking to ordinary 
people and streaming live videos. 

Within days, the police arrested him. 
They also “found” $900,000 in his apart- 
ment, and suggested that he was a foreign 
agent. So Mr Tikhanovsky’s wife put herself 
forward as a candidate. Thousands of peo- 
ple came out to sign her nomination pa- 
pers. Some carried slippers. 

Unlike previous protests in Belarus, the 
current wave involves lots of middle-class 
urbanites and parts of the elite, who have 
spotted a viable alternative as two other in- 
dependent challengers have emerged from 
within the system. One is Valery Tsapkalo, 
a former ambassador to the United States 
and a founder of Belarus’s successful IT 
cluster. The other, more serious, challeng- 
er is Viktor Babaryko, a former banker. (He 
was the boss of Belgazprombank, a subsid- 
lary of Russia’s Gazprombank.) 

Mr Lukashenko appears rattled. He fired 
his moderate prime minister, allegedly for 
his links to Mr Babaryko, and ordered his 
security services to raid Belgazprombank. 
In the past week a dozen cases have been 
launched against Mr Babaryko’s allies. Bel- 
gazprombank, which Mr Lukashenko al- 
leges to be a tool of Russian influence, has 
been placed under the administration of 
the central bank. To all of this, Mr Babaryko 
responds that the authorities do not under- 
stand that “the Belarus that existed before, 
and which they trampled under their feet, 
no longer exists.” & 





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The Economist June 20th 2020 


The covid economy 
Spending big to 
Save jobs 


BERLIN 
Europe’s furlough schemes seek to 
prevent mass unemployment 


OR MANY economists, the model for a 
F covid-19 furlough scheme has been Ger- 
many’s. It already had a good record, man- 
aging to avoid big job losses during the glo- 
bal financial crisis of 2008-09. Then, the 
German government paid the bulk of 
wages of people who had temporarily 
stopped working, rather than letting their 
employers fire them altogether. It did not 
prevent a nasty recession, but remarkably 
few jobs were lost. 

Can other countries successfully copy 
Germany? German economists answer 
“Jein’—both yes and no. First of all, Kurz- 
arbeit (Germany's furlough scheme) is be- 
ing tested on an unprecedented scale. 
Whereas at the peak of the financial crisis 
in May 2009 just under1.5m German work- 
ers were furloughed, 7.3m employees in 
Germany were on short-term work in May, 
according to the Ifo Institute for Economic 
Research, a think-tank. 

Second, no one knows when the effects 
of the pandemic will end, or whether there 
will be a second wave, whereas during the 
financial crisis it was generally (and right- 
ly) assumed that the recession would be 
brutal but short. Also, Germany’s scheme 
dovetailed well with other aspects of Ger- 
man corporate governance, such as work- 
ers’ representation on company boards. 
These stopped bosses firing employees as 
soon as the economy turned sour. 

Nearly all pundits agree that Kurzarbeit 
is a useful tool. Alexander Herzog-Stein of 
the Hans Bockler Institute, a think-tank 
close to trade unions, likens it to a bridge— 
“but there must be a shore on the other 
side.” The German scheme is limited to 12 
months. The state usually pays 60% of net 
wages (67% for employees with children), 
though the government recently decided to 
raise those contributions incrementally to 
a maximum of 80% (and 87%) for employ- 
ees who have been furloughed for seven 
months or more. During the financial crisis 
many furloughed workers had well-paid 
jobs at manufacturing plants. This time, 
many come from low-paid jobs in retail or 
hospitality. They would find it hard to 
make ends meet on 60% of their pay. 

The German scheme has been doing the 
trick. The registered unemployment rate 
rose to 6.3% 1n May, up from 5.8% in April. 
But mass lay-offs have been avoided. The 
Same goes for furlough programmes in 
France, Italy, the Netherlands and Spain. 
France's chomage partiel was benefiting 












Gass 
The furlough effect 
Unemployment rate, % 
15 
United States f ~ , 
Austria 
9 
France 
6 
Germany 
3 
0 


Jan Feb Mar Apr May 
2020 


Sources: Eurostat; national statistics 


8.6m workers at the end of April. The state 
pays up to 84% of net salary, to a ceiling of 
€4,608 a month. Employees on the mini- 
mum wage still get the full amount. As with 
the German scheme, itis flexible: firms can 
claim just a part of a worker's salary if he or 
she is putting in reduced hours. 

These generous schemes in France and 
Germany have attracted crooks. The French 
labour ministry has spotted several types 
of fraud. Some companies have claimed 
subsidised wages for employees who have 
kept working (sometimes even on over- 
time). Others have submitted claims for 
more than employees actually earn. By 
Some estimates, as much as 10% of fur- 


Europe 43 


lough pay is lost to fraud. Muriel Pénicaud, 
France’s labour minister, has announced 
that 50,000 companies’ returns will be 
scrutinised until the end of the summer. 

Those sceptical of furlough schemes ar- 
gue that they are costly and Keep alive badly 
run companies that should die. The cost is 
indeed gargantuan, but so is the cost of 
deep recessions. The usual German Kurz- 
arbeit pay is the equivalent of what, on av- 
erage, people younger than 50 are paid in 
their first year at work. Some workers 
would stay in employment anyway, so the 
payment is wasted on them. Yet it is proba- 
bly worth subsidising them, saving tens of 
thousands of jobs, even if that keeps some 
corporate duds alive fora bit longer. 

Oliver Stettes of the Cologne Institute 
for Economic Research says Austria illus- 
trates why such schemes are working. The 
registered unemployment rate there rose 
to 12.8% in April (5.5 percentage points 
more than a year before). However, once a 
much improved scheme was brought in, 
replacing up to 90% of wages, the jobless 
rate steadied at 11.5% in May. Short-time 
work schemes are a useful way to bridge a 
short period of low demand for economies 
that do not suffer from fundamental struc- 
tural weaknesses. Depending on the shape 
of the recovery, unemployment in euro- 
zone countries may eventually rise once 
the money runs out—but less than it would 
have done without furlough schemes. & 


The call of the wild 


VAISON-LA-ROMAINE 
Townies fleeing to the countryside are shocked to find it noisy and smelly 


RANCE'S SENSE Of itself has long been 
F rooted in the land, even though three- 
quarters of French people live in towns. 
Now, however, having locked down in 
Small airless spaces, many city-dwellers 
feel the call of the wild. Estate agents 
report an uptick in searches for homes 
with gardens. Diehard urbanites talk 
wistfully of a bucolic existence in la 
France profonde. Ina poll, 61% of the 
French think confinement will encour- 
age people to move to the country or buy 
a second home. But do today’s townsfolk 
know what rural life really entails? 

The question arose late last year, 
when Pierre Morel-A-L Huissier, a deputy 
from the Lozére, a remote rural area, 
introduced a bill to protect France’s 
“sensory heritage’. By this, he meant “the 
crowing of the cockerel, the noise of 
cicadas, the odour of manure’, and other 
rural sounds and smells. Some of his 
fellow citizens, it turned out, had judged 
these intrusions into their romanticised 
idyll a form of intolerable pollution. 


Last year second-home owners on the 
Ile d’Oléron, off the west coast, broughta 
case against a cockerel for crowing too 
early. The court ruled against them, 
rescuing Maurice, the unfortunate bird, 
from banishment or worse. In Soustons, 
in the south-west, a case was brought 
against the owner of 50 ducks and geese 
which made a din. Near the Pyrenees, a 
new resident in Foix filed acomplaint 
against the village because the church 
bells were too noisy. 

Rural people are pushing back against 
this nonsense. The mayor of Saint-An- 
dré-de-Valborgne, in southern France, 
has put up asign outside his village 
warning visitors that they are enteringa 
risk zone. Church bells ring often. Trac- 
tors make a racket. All because “farmers 
are working to give you what you eat.” 
These noises are “nota nuisance but 
intrinsic and authentic characteristics” 
of rural life, said Mr Morel-A-L’Huissier. 
And on its first reading, the National 
Assembly unanimously backed his bill. 


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44 Europe 


The Economist June 20th 2020 


Charlemagne | How a dining club took over the EU 


The rise, fall and potential rebirth of the Eurogroup 





HE EUROGROUP is arguably the European Union's strangest in- 
Berit It started life as a dining club for euro-zone finance 
ministers to gossip before the official meetings of ministers from 
the whole Eu, yet morphed into a forum where the fate of nations 
was decided. During the euro-zone crisis, the terms of bail-outs to- 
talling more than €50obn ($550bn) were agreed at its informal, 
closed-door meetings, at which no minutes were taken (but alco- 
hol and cigarettes were). Even its legal existence is a matter of de- 
bate. Arecent opinion froma legal adviser at the European Court of 
Justice suggested that any cases brought against the Eurogroup 
were inadmissible. The club’s only official rules are that euro-zone 
finance ministers shall meet for regular informal chats and give its 
presidents two-and-a-half-year stints. Beyond that, it is a free-for- 
all. Its working methods can be changed at will. It is Brussels as its 
best and worst: unaccountable, opaque and brutally efficient. At 
times it was the closest thing the euro zone had toa government. 

Now, the hunt is on fora new jockey to steer this peculiar beast. 
After two-and-a-half years as the group’s president, Mario Cen- 
teno, the Portuguese finance minister, is stepping down. Haggling 
over his replacement is already under way. Nadia Calvifio, Spain’s 
economy minister and a former official in the European Commis- 
sion, is in the running and well-regarded. But that is only part of 
the battle. 

The EU is aclub that includes a preponderance of small coun- 
tries. Their ministers may opt for one of their own, lest their bigger 
peers start to throw their weight around. When it comes to select- 
ing the new president, each euro-zone minister has one vote. This 
means the three Baltic states (collective population: 6m; com- 
bined GDP: €110bn) will have greater say than France and Germany 
(collective population: 151m; GDP: €6trn). So Paschal Donohoe and 
Pierre Gramegna, the finance ministers of Ireland and Luxem- 
bourg respectively, also havea shot at the job. 

Whoever wins will take over a less prominent institution. The 
Eurogroup reigned almost supreme in the euro-zone crisis. But in 
the current mess it cuts a smaller figure. When the euro teetered, 
the Eurogroup was a useful intergovernmental forum for the two 
sides: those who had money (such as the German government) and 
those who needed it (such as the Greek one). It operated as a minis- 


terial fight club, where governments could brawl without dip- 
lomatic incident. Heads of government “needed a place where you 
could havea more bare-knuckled exchange’, said George Papacon- 
stantinou, a former Greek finance minister, who was often on the 
wrong end of such exchanges. 

In the current crisis, however, the pain is not limited to the euro 
zone. All EU economies have collapsed simultaneously, albeit to 
different degrees. Coming up with a solution that covers only the 
currency area is no longer necessary now that Britain—the largest 
and most veto-ready non-euro member—has left the bloc. With- 
out Britain, the remaining non-euro countries—eight out of 27— 
are vastly outnumbered in terms of population and economic 
clout. All bar Denmark are obliged to join the euro eventually, even 
if some drag their feet deliberately. “Multi-speed Europe is dead,’ 
says Lucas Guttenberg from the Jacques Delors Centre, a think- 
tank, referring to the idea that willing EU members could integrate 
while others stayed put. “It is one-speed Europe with some lag- 
gards.” In such circumstances, the Eurogroup seems a relic. 

Fundamentally, the Eurogroup was a stopgap, a way of papering 
over the cracks inherent in a monetary union without fiscal trans- 
fers. Now, however, European leaders are showing a willingness to 
plug these holes themselves. In April the Eurogroup tried to cook 
up a fiscal response to the coronavirus crisis. While ostensibly 
large—it included €540bn-worth of loans—it was deemed inade- 
quate by countries such as Spain, which demanded that any cash 
come in the form of grants, never to be paid back. EU leaders—led 
by France and Germany—went even further, channelling their in- 
ner federalists by discussing a proposed €750bn package, includ- 
ing €50o0bn in handouts paid for by debt issued collectively by the 
EU, rather than individual governments. 


The last supper 

The next president of the Eurogroup has the task of making the 
body relevant again, or reading its last rites. Pessimists think the 
club will not last long. “In the long term the Eurogroup is destined 
to fade away,’ says one commission Official. It could easily be in- 
gested into other EU institutions, which have a proper legal foot- 
ing. Not all are so sure. Old hands offer reminders that Eurogroup 
meetings were happily ignored at the start of the millennium, be- 
fore the EU began a decade of crises after the financial crash. Its 
time may come again. If someone taps the euro zone’s bail-out 
funds, then finance ministers will happily stick their beaks into 
the spending of their peers once more. Plus, the current enthusi- 
asm for bold steps towards integration among EU leaders may not 
last, leading to a return of the wheeling and dealing of finance 
ministers in their strange meeting. 

Others propose more radical schemes to keep the Eurogroup 
relevant. After a decade in retreat, Europe’s federalists are on the 
offensive. Handing the group’s presidency to an EU commissioner 
rather than a finance minister would create a de facto EU treasury, 
argues Andrew Duff of the European Policy Centre, a think-tank. 
Appointing someone like Paolo Gentiloni, the EU commissioner in 
charge of the economy and a former Italian prime minister, would 
make sense, given that the commission is likely to be the one in 
charge of the €750bn in extra crisis spending. Current members of 
the club are less keen. Finance ministers prefer someone with skin 
in the game. Ultimately, the EU’s money comes from national capi- 
tals. But without such a move, the Eurogroup may end up search- 
ing fora new, more modest role. Perhaps being a plain old dining 
club is notsobad afterall. & 


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Syeielin 





Covid-19 


Trust me, I'ma prime minister 


The British state provides a case study in how not to respond to a pandemic 


OVID-19 WAS sweeping Europe. Images 
C of overwhelmed hospitals in Lombardy 
played on television every night. Govern- 
ments were beginning to put in place re- 
Strictions that would last for months. And 
Mike Padgham, the owner of four care 
homes in Scarborough and Pickering, in 
the north-east of England, faced a dilem- 
ma. Should he shut his homes to visitors? 

If they had been in Alsace or Umbria, the 
government would have told him to. In 
Britain, it did not. Despite the lack of na- 
tional guidance, Mr Padgham nevertheless 
went for it, closing the homes to all but es- 
sential visitors; something which annoyed 
relatives. “People thought we were jump- 
ing the gun,’ he recalls. Two days later on 
March 13th, Public Health England, a gov- 
ernment agency, advised those who were 
unwell to stay away from homes, but also 
noted the “positive impact” of visits. It took 
another fortnight for the government to 
tell care homes to turn visitors away. 


Mr Padgham’s foresight was not enough 
to keep out the virus. There were five 
deaths in his homes—a small part of a big- 
ger tragedy. Altogether, one in 14 residents 
in British care homes at the start of the pan- 
demic is thought to have died from the vi- 
rus. A comparison in May by the Interna- 
tional Long-Term Care Policy Network 
found that a higher proportion of people in 
care homes in Britain had died than in 
France, Germany, Canada or Sweden. 

Some aspects of the British response to 
the pandemic have been admirable. Its re- 
searchers are leading the search for drugs; 
an Oxford University trial has found the 
most promising one yet (See next story). 
The National Health Service has weathered 
the storm. Sweeping organisational 
changes—including postponing elective 
Surgeries, discharging inpatients and buy- 
ing private beds—saved it from being over- 
whelmed. But measured by the number of 
deaths over and above those that would 


~ Also in this section 
47 The first drug that works 
48 Bagehot: Losing his grip 


normally be expected, Britain nevertheless 
appears to have the highest death rate in 
the developed world (see chart1 overleaf). 

Lots of factors beyond the government’s 
control contributed to this. Care homes are 
a popular way to look after old folk. Britons 
are fatter than their fellow Europeans. The 
large ethnic-minority population is dis- 
proportionately likely to suffer from diabe- 
tes and heart disease, which increase the 
risk of severe covid-19. Genomic analysis 
Suggests Britain imported lots of cases 
from Spain, before it was clear how preva- 
lent the virus was there. One in seven 
Britons live in London, an international 
travel hub which prior to the pandemic re- 
ceived nearly1,500 flights a day. 

Yet the government’s poor response has 
contributed. On March 12th, having joked 
two weeks earlier about shaking hands ina 
hospital with covid patients, Boris John- 
son, the prime minister, turned serious: 
“families are going to lose loved ones be- 
fore their time.” But the restrictions he an- 
nounced were light: those with symptoms 
were told to stay at home for a week; those 
older than 70 instructed to avoid cruises. 
Meanwhile, continental Europe was al- 
ready beginning to lock down. 

Given the government's well-publi- 
cised suspicion of “experts” views about 
Brexit, Some worried it would ignore the 


Scientists’ advice on dealing with the pan- >> 


The Economist June 20th 2020 #7 


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46 ‘Britain 


>» demic. These fears were unfounded. The 
government's advisory committee (the Sci- 
entific Advisory Group on Emergencies, or 
SAGE) helped shape policy—which was, in 
early March, to protect the vulnerable, 
while tailoring restrictions on others to en- 
sure the health service was not over- 
whelmed. The virus would spread among 
the general population, which would build 
immunity to the disease. 

At that stage, there was great uncertain- 
ty about numbers. Even so, some of SAGE’S 
advice seems questionable. On March 3rd 
the committee minuted that: “There is cur- 
rently no evidence that cancelling large 
events would be effective,” on the grounds 
that those who might have attended would 
go to the pub instead. But not all would, 
and if they did, there would have been less 
risk of the infection spreading across the 
country, which it did. So large events went 
ahead, including a football match on 
March uth between Liverpool and Atletico 
Madrid, attended by 3,000 Spanish fans. 

Perhaps the government should have 
questioned the experts more closely. But it 
“was getting advice it wanted to hear’, 
notes Sir Lawrence Freedman of King’s Col- 
lege London, who worked on the inquiry 
into the Irag war and has reviewed the gov- 
ernment’s early response. Boris Johnson 
was focused on protecting the economy, 
and his instincts are liberal. “Of course 
people must make their own decisions,’ he 


= 
The sick man of Europe 


Excess deaths per 1m population 
Selected countries, from first week of 50+ 
official covid-19 deaths, to most recent week* 


0 200 400 600 800 1,000 
Britain | 
Spain 

Italy 
Belgium 
Netherlands 
Sweden 
France 
United States 
Switzerland 
Germany 
Denmark 











Estimated number of covid-19 infections, m 
By date of national lockdown, 2020 








es 
Britain 
Spain 
France ip 
Italy 
| 0.5 
Germany 





March 
Sources: Google; Imperial College London; Flaxman, Mishra, 


Gandy et al., 2020; Oxford University Blavatnik School of 
Government; Our World In Data; The Economist 


February 


told a press conference. “I’m a believer, as I 
Say, in freedom.” He was unlikely to scruti- 
nise advice that went with his grain. 

Then it became clear just how fast the 
disease was spreading. On March 13th, Neil 
Ferguson of Imperial College London, 
whose team has produced the outbreak’s 
most influential modelling, presented 
analysis to SAGE which showed hospitals 
would soon be overwhelmed. Policy 
changed—but not swiftly enough. On 
March 16th Mr Johnson advised people to 
avoid all unnecessary contact. On March 
18th he announced that schools would 
close. It was not until March 23rd that he or- 
dered people to stay at home. 

As a result of the government's tardi- 
ness, Britons were slower to change their 
behaviour than people in France, Spain or 
Italy (see chart 2). When the country finally 
locked down, the virus had spread further 
than in those countries (See chart 3). Pro- 
fessor Ferguson now estimates that, since 
the epidemic was doubling in size every 
three to four days, if the country had locked 
down on March 16th, the death toll would 
have been reduced by at least half. 

Choosing when to lock down was a dif- 
ficult decision. The same was not true of 
building testing and tracing capacity. In the 
middle of February, SAGE noted that PHE 
could trace only five new cases a week, and 
that it might be possible to raise this to 50 
cases a week. By the time the virus was 


Change in mobilityt, % 
Relative to level in January and February 
20 





March 2020 


Daily covid-19 tests performed 
Per 1,000 people, seven-day moving average, 2020 









Britain* Ke 

: 1.0 

Germa ny OG 
Spain 0.4 


France 


Feb Mar Apr May | Jun 


*At June 17th 2020 
TAverage of retail, grocery, transport, workplaces and residences 
#Number of people tested until May 22nd, then tests performed 


The Economist June 20th 2020 


Poor score 
GDP, % decrease on a year earlier, 2020 forecast 
OECD countries 


-12~—--10 -8 -6 -4 -2 0 
Britain_s 












France | 
Italy 


Spain 














South Korea 


Source: OECD 


Spreading fast PHE still only employed a 
couple of hundred contact tracers. The 
route that some of the most successful 
countries, such as Denmark, Germany and 
Switzerland have followed, of tracing in- 
fected people’s contacts and containing 
outbreaks of covid-19 locally, was thus 
closed to Britain. 

The lack of testing was a bigger problem 
still. Early on, the shortage made it hard for 
scientists to get a true picture of how far the 
virus had spread, and SAGE repeatedly em- 
phasised the need to increase capacity, to 
little avail. Even by the middle of April Brit- 
ain was testing people at a third Germany’s 
rate. For six weeks, it lagged the rest of Eu- 
rope (see chart 4). 

At the time, PHE had sole responsibility 
for testing. In contrast to Germany, which 
used a large number of private and univer- 
sity laboratories, PHE tried to boost its own 
capacity. “They had shown they couldn't 
ramp up supply, and that was because they 
were using homebrewed tests,” says an in- 
sider. It was only after the government be- 
latedly set out a plan in early April to use 
university and private-sector facilities to 
run commercial tests, and passed respon- 
sibility for this to the Office for Life Sci- 
ences, a smaller, more agile government 
body, that capacity jumped. 

The shortage had particularly grim con- 
sequences in care homes. With limited 
testing available, staff with symptoms 
were instructed to stay at home, which re- 
sulted in aspike in the use of agency work- 
ers, who moved from one home to another. 
Care homes also took lots of those rushed 
out of hospitals to free up beds, without the 
ability to test many of the new arrivals. 
Asymptomatic care-home workers gained 
access to testing only on April 29th. Scien- 
tists at Imperial College London tested staff 
at three care homes in the capital in April. 
In two homes, staff tested negative; in one, 
three of19 were positive but asymptomatic, 
meaning they could have been spreading 
the virus unknowingly. 


The decision on whether to make peo- >> 


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The Economist June 20th 2020 


> ple wear face-coverings ought to have been 
a simple affair. Many scientists were lobby- 
ing for it, on the grounds that they cost 
nothing, laboratory tests show that even 
home-made masks can block transmission 
and countries that adopted them early also 
succeeded in containing the disease swift- 
ly. On April 14th Sadiq Khan, the mayor of 
London, asked the government to make 
such an order. SAGE was ambivalent; on 
April 21st it said it regarded the evidence for 
them as “weak” but recommended that 
they should be worn in crowded public 
Spaces. By June 4th, when the government 
announced that people should wear face- 
coverings on public transport, they were 
worn universally in East Asia and much of 
Europe had made them compulsory. Brit- 
ain, along with America, was an outlier. 

Why Britain took so long to follow is un- 
clear; most likely it was because of a paro- 
chial failure to observe best practice abroad 
and an Anglo-Saxon fear of appearing nan- 
nying. It still does not require them in 
shops: most of the Britons crowding back 
into newly reopened retail outlets have 
their faces uncovered. 

Economic life is restarting in Britain, 
but more slowly than elsewhere. Hospital- 
ity remains shuttered. While the best Lon- 
don offers is a takeaway pint from a hand- 
ful of pubs, in Paris or Berlin one can enjoy 
a bottle of wine in a restaurant. According 
to a tracker maintained by the Blavatnik 
School of Government at the University of 
Oxford, the cumulative stringency of the 
government's lockdown is now about 10% 
higher than the rich-country average. 

Britain’s economic structure—it is un- 
der-represented in the worst-hit business- 
es, such as transport and hospitality, and 
has a lot of service jobs that can be done 
from home—should have insulated it 
somewhat against the covid-19 shock. But 
because of the long lockdown, it looks like- 
ly to be near the bottom of the global league 
table for growth in 2020 (see chart5). 

The best performing rich countries, 
such as South Korea, are those that man- 
aged to keep the pandemic under control. 


== 

Bottom of the class, Boris 
Government handling of covid-19, those 
answering ‘somewhat’ or “very” well, 2020, % 


Italy 


Germany 






United 30 
States 


2. i De a a. 
March April 


Source: YouGov 


The worst hit economically, such as Spain 
and Italy, are those with much higher death 
rates. When public opinion will not toler- 
ate elevated death rates, the trade-off be- 
tween public health and the economy dis- 
solves. A healthy population and a healthy 
economy go hand in hand. 

That the British government has pro- 
vided its people with neither is reflected in 
Opinion polls (see chart 6). The prime min- 
ister himself remains fairly popular, but 
his ratings are in decline. He won sympa- 
thy when he succumbed to the disease, but 
has lost it in other ways. The revelations 
that he missed five consecutive meetings 
of the COBRA emergency committee when 
the virus was taking hold, and that Do- 
minic Cummings, his chief adviser, broke 
the lockdown rules he helped design, fu- 
elled suspicions that the government did 
not take the crisis sufficiently seriously. 

The political consequences of this fail- 
ure are likely to stay with Mr Johnson dur- 
ing his time in power (see Bagehot). The 


Britain 


man who expected to be defined by his 
ability to “Get Brexit Done’, as his election 
slogan went, will be remembered for some- 
thing else altogether. As one of his Conser- 
vative predecessors, Harold Macmillan, re- 
sponded when asked what was most likely 
to blow a government off course: “Events, 
dear boy, events.” 

Those events are far from over. Every 
day throws up a difficult new decision. It is 
unclear how to get schools to reopen or 
persuade parents to take their children 
back to the classroom. The government is 
under pressure to reduce the two-metre so- 
cial-distancing rule, but more than 1,200 
new infections a day are being identified in 
Britain, compared with a few hundred in It- 
aly, France and Germany. Loosening social- 
distancing rules and reopening the econ- 
omy under these circumstances is a risk. 

Mr Johnson has a knack for getting away 
with things, and perhaps this gamble will 
come off. The previous ones he took with 
the nation’s health, however, did not. @ 


Small ticket, big difference 


A cheap steroid cuts deaths from severe covid-19 


HE GOVERNMENT'S public-health 
[ Powe may not look good, but 
Britain’s scientists are still top-notch 
when it comes to inventing and discov- 
ering drugs. On June 16th researchers at 
the University of Oxford announced that 
they had identified the first drug proven 
to reduce mortality from covid-19. Dexa- 
methasone, a cheap steroid, reduces 
deaths by a third among the most severe- 
ly ill patients. It is set to become the 
Standard of care for the National Health 
Service (NHS) across Britain. Doctors 
around the world will, undoubtedly, 
follow suit. 

The results came from RECOVERY 
(Randomised Evaluation of covid-19 
thERapy), the world’s biggest clinical 
trial for covid-19 drugs. The trial, run by 
Oxford and the NHS, is testing a range of 
drugs on covid-19 patients 1n 176 hospi- 
tals across Britain. Dexamethasone is an 
anti-inflammatory that is already used to 
treat a variety of health problems, suchas 
rheumatoid arthritis, eczema, asthma 
and some cancers. It was included in the 
covid-i19 trial because steroids were tried 
as a treatment for SARS (Severe acute 
respiratory syndrome), a related lung 
disease, with mixed results. 

As part of the British trial 2,104 pa- 
tients were randomly assigned to receive 
dexamethasone and compared with 4,321 
patients who received the usual standard 
of care alone (which includes treatment 


for dehydration and pre-existing health 
problems, plus oxygen ora ventilator if 
needed). Among those who received only 
the usual care, 41% of patients ill enough 
to need ventilators died within 28 days; 
So did 25% of those on only supple- 
mental oxygen and 13% of those who did 
not need help to breathe. For patients 
treated with dexamethasone, the 28-day 
death rate was 28% for those on ventila- 
tors and 20% for those on oxygen. There 
was no benefit from the drug for the rest. 

This is big. If doctors in Britain had 
known from the start what they know 
now about the effectiveness of dexa- 
methasone, they could have saved as 
many as 5,000 lives since the country’s 
covid-19 epidemic began. That is roughly 
10% of the number of people who have 
died from the illness in Britain. Itisa 
generic drug that hospital pharmacies 
usually have on their shelves. A course of 
treatment costs the NHS about £5 ($6.30). 
In poor countries it would cost about $1. 

Clinical trials of various drugs are 
going on in many other countries. But 
Britain has been particularly committed 
to doing large, rigorous trials while 
battling a big covid-19 wave. Such trials 
are easier to do in the NHS than in more 
fragmented health-care systems, espe- 
cially when results are needed urgently. 
As the pandemic gathers speed around 
the world, dexamethasone can make ita 
little less deadly. 


47 


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48 Britain 


Bagehot | Losing his grip 


The Economist June 20th 2020 


Boris Johnson's poor management of the covid crisis ts undermining his ability to govern 





RITAIN S CHAOTIC departure from the European Exchange Rate 

Mechanism on “Black Wednesday” in 1992 destroyed John Ma- 
jor’s premiership and condemned the country to five years of ago- 
ny, as the Tory government stumbled from crisis to crisis. The co- 
ronavirus debacle now threatens to do the same to Boris Johnson. 
He has a bigger majority than Sir John (87 compared with 23) and is 
more loved by Tories. But the corona crisis is much bigger than the 
ERM episode and will be harder to escape from. 

Mr Johnson's poor handling of the crisis has wrecked the gov- 
ernment’s most important asset, its sense of authority. The gov- 
ernment may already have lost the public: ratings for “being in 
charge of the situation” have been negative since May. It is begin- 
ning to lose its own party, too. Tory MPs have a litany of complaints 
about government policies. They especially dislike the insistence 
that strangers must stay 2m apart when other countries have set- 
tled on1.5m or less, the back-tracking over reopening schools, the 
decision to quarantine those arriving from abroad for a fortnight, 
the abolition of virtual voting, which forces MPs to stand ina mile- 
long “conga line” to cast their votes, and the unruly streets, with up 
to Ao police officers injured in a fortnight of protests and counter- 
protests. Habitual critics of Mr Johnson ask: what did you expect? 
Others are “worse than despondent”, says one. “Despondent im- 
plies that you think that there might be a way out.” 

Mr Johnson’s authority, like that of the Roman emperors he 
studied at university, rested on fear and charisma. He struck fear 
into his colleagues by repeated shows of brutality, expelling half 
the Cabinet when he took over as prime minister, purging 21 MPS 
who voted against the party and dispatching his chancellor, Sajid 
Javid. He also used his considerable political charisma to help win 
an audacious general election in December. Dominic Cummings, 
Mr Johnson’s key adviser, was central to this regime of fear and 
charisma, picking fights with all and sundry but also earning a rep- 
utation as acampaigning genius. 

But fear and charisma only work so long as they are accompa- 
nied by competence. The backbenchers who once feared Mr John- 
son and Mr Cummings are now more worried about the fury of 
their own constituents. There is talk of emperors without clothes 
and wizards behind the curtain. The ministers Mr Johnson demot- 


ed in his early months may now have achance for revenge. 

Downing Street has woken up to the fact that it has a party- 
management problem on its hands and is making an effort to hold 
more meetings with backbenchers and ministerial assistants. The 
“town hall” faction in Downing Street—people who worked with 
Mr Johnson when he was mayor of London, led by Sir Eddie List- 
er—are much more emollient than Mr Cummings. The whips 
should regain some power when they can do their arm-twisting in 
person rather than over Zoom. The leadership can also take some 
comfort from the fact that, despite much bad news, the nine polls 
taken since June ist show the Tories leading Labour by between 
two and eight points. 

But righting the ship will be difficult. The public’s growing dis- 
trust of the powers-that-be has been exacerbated by the progres- 
sion from simple messages (“don’t go out”) to more nuanced ones 
(“be aware’), and there are plenty of timber-shaking covid storms 
on the horizon. Unemployment could surge to over 3m when the 
furlough scheme winds down. Britain’s poor performance is be- 
coming painfully obvious as locked-down Britons watch images of 
continentals relaxing in cafes and returning to work. 

More and more people worry that Mr Johnson was brought in to 
solve one problem—getting Brexit done—but is now confronted 
with an entirely different one. A Cabinet that was selected on the 
basis of ideological soundness rather than competence seems 
overwhelmed by events. Two figures, Gavin Williamson, the edu- 
cation secretary who has blown hot and cold over whether chil- 
dren can go back to school, and Robert Jenrick, the local-govern- 
ment minister, who is entangled in a scandal with an insalubrious 
party donor, look particularly dismal. Mr Cummings’s formidable 
Skills in running campaigns have not translated to governing the 
country. You can't gaslight a pandemic. 

The new intake of Tory MPs is proving to be surprisingly hard to 
manage. A veteran observer of the party says that he expected re- 
bellions from Europhile MPs and ageing Brexiteers who have been 
muscled aside by Mr Cummings. But what has surprised him is the 
rebelliousness of Tories from the largely working-class “red seats” 
who were carried to the House of Commons on Mr Johnson's coat- 
tails. These neophytes have not been inculcated with loyalty to the 
party by several failed runs for seats; some are local figures who do 
not have an eye on national office. They are unlikely to become 
more obedient as the unemployment numbers mount. 


Rome didn’t fall ina day 

All this points toa future in which the Conservative Party stumbles 
from crisis to crisis. Tory rebellions will become part of the politi- 
cal landscape, just as they were under Theresa May. Climb-downs 
and u-turns will become routine. On June 16th the government re- 
versed its opposition to providing poor children with free school 
meal vouchers over the summer in the face of a campaign mount- 
ed by Marcus Rashford, a 22-year-old footballer. With the excep- 
tion of Brexit, on which itis likely to remain adamantine, Downing 
Street may even reverse itself on some big questions. Mr Johnson's 
support for Huawei is beginning to soften under pressure from the 
newly formed China Research Group. 

For a while it looked as if the new government had putan end to 
the era of political chaos that began four years ago with the refer- 
endum and consumed Theresa May’s premiership. Now, thanks to 
a pandemic that not even the most Eurosceptic MP can blame on 
the EU, another era of chaos has been unleashed and another Tory 
prime minister is condemned to years of agony. @ 


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Horsemen of the apocalypse 


BUNIA AND BOGOTA 


Covid-19 raises the risks of violent conflict 


UNIA, A DUSTY city of perhaps 650,000 
B in Ituri, a province of eastern Congo, 
has long known war. Since the start of this 
year, rebels have burned dozens of villages 
to the ground and hacked hundreds of peo- 
ple to death with machetes. A rebel group 
made up of assailants from the seed-sow- 
ing Lendu tribe has launched a series of at- 
tacks on the pastoralist Hema. The govern- 
ment hospital in the city is overrun with 
patients. “We have people wounded with 
machetes, with gunshots, women witham- 
putated limbs, people with fractures,” says 
John Katabuku, a doctor working there. 
“When the displaced arrive we look after 
them for free—they have lost everything. 
But it is difficult for the hospital. We really 
do not have the means.” 

With war comes disease. Ituri is still re- 
covering from an outbreak of Ebola which 
started in 2018 and killed 2,262 people in 
the region before subsiding. Now it has co- 
vid-19. Though there are just two recorded 
cases in the province, that is surely a woe- 
ful undercount. If the disease is spreading, 


it would not be easy to tell. Tests have to be 
sent 1,800km to the capital, Kinshasa. And 
few people can get tested. Some 22 clinics 
have been burned down. One man living in 
the nearby war-torn area of Djugu says that 
there is nowhere to go if you are sick—all 
the clinics are either ruined or occupied by 
rebels. The hospital in Bunia has no work- 
ing ventilators and only enough space to 
isolate up to ten people, in the area that was 
previously being used for suspected Ebola 
patients. “We have to hospitalise two to 
three displaced children per bed, so you 
can see that we do not have infection pre- 
vention under control,’ says Dr Katabuku. 
Covid-ig9 has thus far taken its most seri- 
ous toll on rich, peaceful countries. Ameri- 
ca, Britain, Italy, France and Spain, five of 
the six worst-affected, have collectively 
borne over half of recorded deaths from the 
virus worldwide. But the disease is now 
rippling through less stable places. What 
will happen as it does? There are reasons to 
fear not only that conflict will help the vi- 
rus to spread, but also that its spread may 


worsen wars. The two could feed upon each 
other, creating a cycle of misery it is diffi- 
cult to arrest. 

At the outset of the Peloponnesian war 
with Sparta, which raged from 431BC to 
4OABC, Athens was ravaged by a plague that 
swept through the city for three years, kill- 
ing thousands of soldiers and a third of its 
inhabitants. “Such was the nature of the ca- 
lamity, and heavily did it weigh on the 
Athenians; death raging within the city and 
devastation without,’ recalled Thucydides, 
a Greek historian and general. The Spanish 
flu of 1918, another world-shaping pan- 
demic, festered in the trenches and bar- 
racks of the first world war and killed more 
people than the conflict itself. Over 36,000 
American soldiers died before ever reach- 
ing France, with 12,000 dying on troop 
transports. In total, more American sol- 
diers, sailors and Marines died of flu and 
pneumonia than bullets and bombs. 

Some still hope that confronted with an 
indiscriminate killer, human beings on all 
sides of a conflict would put down their 
guns—at least briefly—and confront the 
shared enemy. In March Antonio Guterres, 
secretary-general of the United Nations 
(UN), began urging a global ceasefire. En- 
couragingly, fighters in more than a dozen 
countries seemed to heed his call. The Na- 
tional Liberation Army (ELN) in Colombia, 
which has been trying to “liberate” the 
country fora half century, declared a cease- 
fire on March 30th. So did the New People’s 


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International 


» Army (NPA) in the Philippines, a commu- 
nist guerrilla group that has been in the 
field since 1969. Saudi Arabia has sought to 
draw down its forces in Yemen and de- 
clared a unilateral ceasefire. In Syria there 
were just 71civilians killed in May, the low- 
est monthly toll since the start of the civil 
War in 20u1, according to the Britain-based 
Syrian Observatory for Human Rights. 

But in many places the tranquility has 
proven short-lived. By the end of April, 
both the ELN and the NPA announced that 
they were not extending their ceasefires 
and would return to violence. The Philip- 
pine government argued that the NPA had 
violated its ceasefire early on and that 
peace talks were pointless after the guerril- 
las killed two soldiers at the end of March. 
The Security Council, the UN’s cockpit of 
big powers, has been deadlocked by squab- 
bling between America and China, includ- 
ing over weighty matters such as what to 
call the virus. Political violence has risen in 
43 countries and remained steady in 45 
since the start of the pandemic, according 
to data collected by the Armed Conflict Lo- 
cation & Event Data Project (ACLED). Some 
of the largest increases were in Libya, Ye- 
men and Mali, each enmeshed in civil wars 
with a web of international links. 


Behold a pale horse 

Battlegrounds are easy pickings for the vi- 
rus. But they also help it spread. War dis- 
places civilians, shifting disease from one 
place to another, while their immune sys- 
tems are worn down by hunger, trauma and 
ill health. Trust in government tumbles, 
making it harder to enforce social distanc- 
ing or deliver vaccinations. And those who 
normally provide succour are driven away. 
UN humanitarian agencies have already 
cut staff in places like Yemen and placed 
limits on where their staff can travel, notes 
Robert Malley, the president of the Interna- 
tional Crisis Group, a research outfit. 





In Congo, some 480,000 people have 
fled their homes since violence escalated 
in late March. This number accounts for 
75% of the total number of people dis- 
placed worldwide during the pandemic. 
Near Bunia, Over 27,000 displaced people 
live in rows of white tarpaulin tents ina 
camp. Twenty-nine-year-old Charlotte 
Tabu sleeps in a tent that she shares with 
nine others. She fled when rebels attacked 
her village. “The rebels burned my house 
while I was working in the fields,” she says. 
“We are suffering here. It is not easy to find 
food in the camp. We need this war to end. I 
had seven children, two were burned in- 
side my house.” 

Health workers worry about the spread 
of the virus through and among such 
wretched communities. In Cox’s Bazar in 
Bangladesh, for instance, 900,000 Rohin- 
gya Muslims, driven out of Myanmar, live 
in packed camps. In a survey conducted 
from April u-17th, researchers at Yale found 
that 25% of respondents in camps had ex- 
perienced at least one common covid-19 
symptom. Most had attended a communal 
prayer in the previous week, a setting in 
which transmission is especially likely. 
Several refugees have already died. 

Those with the guns—governments and 
rebel groups alike—are exploiting oppor- 
tunities created by the virus and its shock 
to economic and social life. Since March Is- 
lamic State has switched its focus from in- 
timidating civilians to attacking govern- 
ment and government-backed forces in 
Iraq and Syria. It killed more than 30 Syri- 
ans soldiers in two days of fighting in April 
and briefly seized a small town, Mubarak, 
in Diyala province north-east of Baghdad. 
In early May it launched its biggest attack 
in Iraq since the coalition declared its de- 
feat in 2017, killing 1o fighters from Hashad 
al-Shaabi, a mostly Shia militia. 

In Colombia, the Simon Bolivar bridge 
on the border with Venezuela has closed. 








The Economist June 20th 2020 


| 
Infection then destruction 
Political violence and protests 





Events* Deaths 
2,000 2,000 
Afghanistan 
1,500 </ 1,500 
| 1,000 1,000 
Syria 
d Congo 
500 500 
| Mali 
—— 0 Libya iat 0 
Jo Mees RY) Be, 
2020 2020 


*Battles, explosions/remote violence, protests, riots, 
strategic developments or violence against civilians 
Source: Armed Conflict Location and Event Data Project 


That means that many of the 35,000 Vene- 
Zuelans who crossed on an average day are 
now being forced to use illegal crossing 
points controlled by armed groups. Au- 
thorities in Colombia fret that this flow of 
untested people might unleash a health di- 
saster. It also gives rebels a fresh source of 
recruits among desperate Venezuelans. 

That is one of many ways in which Co- 
lombia’s armed groups have consolidated 
their position. Many have jumped at the 
opportunity to expand their control and 
build something resembling legitimacy by 
imposing cordons sanitaires and lock- 
down. In parts of Narifo, in southwestern 
Colombia, the Oliver Sinisterra, a “dissi- 
dent” group descended from FARC, a guer- 
rilla organisation that is now a political 
party, threatened to “sanction”—in prac- 
tice, attack—any shop found open or any 
pharmacy with too many customers in- 
Side. In Bolivar, in northern Colombia, the 
ELN has said only bakeries, food stores and 
pharmacies may open. In Arauca, on Co- 
lombia’s border with Venezuela, the ELN 
has even offered to educate the children of 
farmers, while schools are closed. Such i1n- 
doctrination could breed another genera- 
tion of rebels. 

The crisis has also made it easier for the 
government to target insurgent groups and 
their illegal coca crop. Because road traffic 
has plummeted and the army has been put 
in charge of supplying towns and cities 
with food, illicit vehicles heading to rebel 
hideouts stick out like lines of powder co- 
caine on a mirror. That has enabled the 
armed forces to mounta string of attacks in 
Cauca, on the Pacific coast. The govern- 
ment is also eradicating coca in areas 
which they previously avoided, because 
farmers, who would otherwise offer vigor- 
ous resistance, are safely locked down. 

Armies and navies are also fertile 


ground for contagion. Troops are packed >> 


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The Economist June 20th 2020 


>» into barracks; sailors, into cramped ships. 
Men in uniform gather in large numbers 
for drills and exercises. They cross oceans 
and borders. Marauding land armies are 
rarer than they once were, but many war 
zones pull in spooks, soldiers and insur- 
gents across borders. In Iran, one of the 
worst-hit countries in the Middle East with 
nearly 9,000 deaths, Mahan Air, an airline 
affiliated with Iran's Islamic Revolutionary 
Guard Corps (IRCG), continued to operate 
between China and Iran for weeks after 
other airlines had suspended flights. Sev- 
eral commanders contracted the virus. The 
movement of IRGc-financed Shia fighters 
between Iran, Iraq, Syria, Lebanon, Paki- 
stan and Afghanistan also spread the dis- 
ease. Syria’s first documented cases oc- 
curred in Saida Zeinab, a Shia shrine near 
Damascus under the control of IRGC- 
backed armed groups. 

Rich countries’ armies are affected 
too—in ways that may have lasting conse- 
quences. In America over 8,000 military 
personnel have tested positive for covid-19, 
with three deaths (the case fatality rate for 
those with military ties is 0.3%, considera- 
bly lower than the rate for the broader pub- 
lic, perhaps because soldiers tend to be 
young and fit). Foreign governments have 
Sharply cut ground forces and military 
trainers, including most of Iraq’s 29 co- 
alition partners pursuing Islamic State (Is). 
In March America withdrew from six bases 
in Iraq and NATO suspended its training 
programme. Defender-20, a military exer- 
cise slated to be the largest movement of 
American troops to Europe since the cold 
war, was halted, not long after a Polish gen- 
eral involved in its planning was taken ill. 
At the same time, America’s armed forces, 
like many others, have been tied up on the 
home front, to support beleaguered civil- 
ian authorities with everything from logis- 
tics to testing. 

The most dramatic impact, however, 
has been on navies, whose confined spaces 
are ripe for disease. “It is a Petri dish of vi- 
rus, Says one former commander of an 
American carrier strike group. “There is no 
social distancing of 5,000 people ona vehi- 
cle that’s three football pitches long...and 
one football pitch wide.” America’s navy 
comprises a quarter of the country’s mili- 
tary personnel but a third of all cases 
among them. The uss Theodore Roosevelt, 
one of America’s largest carriers, was 
forced to halt operations in the Pacific and 
return to port in Guam in March after an 
outbreak of covid-19 that eventually infect- 
ed1,000 of its crew, out of 5,000 or So in to- 
tal, including its captain. It limped back to 
sea only at the end of May. France’s sole air- 
craft-carrier, the more diminutive Charles 
de Gaulle, was also taken out by covid-19, 
with two-thirds of its crew infected 
(though only half were symptomatic). 

Many countries are anxious that such 


self-evident disruption to their armed 
forces reeks of vulnerability. On May 6th 
the UN’s Mr Guterres warned that some 
“may see opportunities because the atten- 
tion of governments and the international 
community is absorbed by the health cri- 
sis’. That is presumably why Thomas 
Modly, America’s then navy secretary, rash- 
ly sacked the Roosevelt's captain, who had 
sounded the alarm about conditions onthe 
ship. In a speech to the Roosevelt's ailing 
crew, Mr Modly told them to “stand strong 
as watriors, not weak like victims’. The 
ship, he said, “has to demonstrate to the 
citizens back home that it has its act to- 
gether, and that itis knocking down this vi- 
rus, just as it would knock down the Chi- 
nese or the North Koreans or the Russians 
if any one of those nations were ever So stu- 
pid enough to mess with the Big Stick”. (Mr 
Modly himself was later forced to resign for 
his poor judgment.) 


Opening the seals 
The urge to downplay weakness and pro- 
ject strength has resulted in a form of ner- 
vous muscle-flexing that Nick Childs of the 
International Institute for Strategic Stud- 
ies, a think-tank, calls “pandemic deter- 
rence’. In mid-April China steamed its own 
aircraft-carrier through the Miyako Strait 
between Taiwan and Japan, an “opportu- 
nistic’” act “almost calculated to contrast 
with the plight” of the stricken Roosevelt, 
notes Mr Childs. On May 22nd America’s 
navy pointedly noted that it had seven out 
of eleven carriers at sea, though it is im- 
plausible that all are fighting fit. In mid- 
June three were sent to the Pacific for the 
first time in three years (See China section). 
Covid-19 has not had the shattering ef- 
fect on military power the Spanish Flu had 
a century ago. Modern health care is vastly 
better. Today’s pandemic, unlike the earlier 
one, largely spares the young adults who 
fill the ranks of armed forces. But as gov- 





International 51 


ernments have been preoccupied at home 
and distracted abroad, the virus has deep- 
ened geopolitical tensions—between 
America and China, above all—and wors- 
ened what was already a febrile interna- 
tional mood. “Some leaders may... see co- 
vid-19 as cover to embark on destabilising 
foreign adventures, whether to deflect do- 
mestic discontent or because they sense 
they will face little pushback amid the glo- 
bal health crisis,” warns the IcG. 

The line between pandemic deterrence 
and adventurism can be hard to draw. But 
some of the geopolitical manoeuvring has 
already taken a more violent turn. In early 
March, Indian troops in Ladakh, a Himala- 
yan region abutting China, delayed their 
annual summer exercise after soldiers 
were infected by covid-19. China went 
ahead with its own matching drill. But the 
People’s Liberation Army (PLA) peeled away 
from exercises and dashed to several dis- 
puted areas on the mountainous border, 
where it dug in to strategic territory. India’s 
army stumbled upon them at the end of 
April, prompting it to rush forces to the dis- 
puted area. 

The entanglement of virus and war was 
encapsulated ina series of videos and pho- 
tographs showing PLA troops in the after- 
math of a brawl in May, wearing masks as 
they leant over trussed and bloodied Indi- 
an captives, mindful of good respiratory 
hygiene even during a skirmish between 
nuclear-armed rivals. Another fight erupt- 
ed on June 15, resulting in serious casual- 
ties on both sides (see Asia section). “A sec- 
tion of the Chinese leadership believes that 
the ...pandemic is a window of opportunity 
for China to expand its regional and global 
influence,” reflected Shyam Saran, India’s 
former top diplomat, in May. “China 
Stabbed us in the back,’ complained an In- 
dian officer to Newsi18, a television chan- 
nel. “In the middle of a pandemic, this was 
notexpected”. 


* 


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Business 


The Economist June 20th 2020 





Luxury in the pandemic 


Fashion victims 


PARIS 








Slow times in the luxury world will separate the bling from the chaff 


ILAN, PARIS or New York this time of 
Myyear would usually be teeming with 
fashionistas scrambling to get from the Ba- 
lenciaga show to the Chanel party. Not in 
2020. Fashion weeks have been cancelled, 
repurposed as posh catwalk webinars. 
Shops selling Hermés ties and Prada 
pumps are only just reopening, wondering 
what to do with stock of pre-covid-19 vin- 
tage. Instagram influencers normally on 
hand to feed the hype have nothing to snap. 

The world of personal luxury goods— 
from handbags and haute couture to dia- 
mond rings and pricey Swiss watches—has 
been in hibernation. At the height of the 
pandemic between March and May sales 
slumped by 75% or so on a year earlier, ac- 
cording to the Boston Consulting Group. 
They have slowly picked up as Asia, then 
Europe and America, started reopening. 
Even so, the outlook for the luxury world is 
far from glittering. 

The global recession hangs over a sector 
fuelled by consumer confidence. Beyond 
that short-term shock, the industry is fac- 
ing an overhaul in how its baubles are 
made, where they are sold and to whom. 


Trends once expected to play out over a de- 
cade may unfold in mere quarters. Rapid 
change has set nerves jangling in a busi- 
ness meant to exude timeless tradition. 
Start with who is buying and where. Al- 
though most purveyors of luxury are Euro- 
pean (with America home to some of the 
lesser marques), most of their customers 
come from Asia. Asians bought more than 


=aet 
The suitcase trade 
Luxury-goods sales 


2019%*, % ; 
Other Asia 11 
Europe 17 


@aaewee | 





Americast 22 


Japan 10 


Rest of world 6 





By country/region Europe 31 Other Asia 15 

| | il 
China 11 Japan 9 
Rest of world 4 


Sources: Bain & Company; Altagamma 


+ Also in this section 


53 Race in Silicon Valley 


54 Bartleby: Waging war on recessions 





55 Samsung scandals 
55 Corporate bust-ups in China 
56 Inside JAB Holding 


57 Schumpeter: Zoom and gloom 


half of the €281bn ($315bn) in bling sold last 
year. Chinese buyers alone have gone from 
1% of purchases 1n 2000 to 35% last year, ac- 
cording to Bain, another consultancy. But 
most of that—perhaps 70%—was pur- 
chased overseas, often on jaunts to Europe. 
Just over a tenth of all luxury sales were ac- 
tually booked in mainland China. 

Unless intercontinental tourism re- 
bounds faster than expected, new ways will 
have to be found to get Euro-chic into Chi- 
nese hands. Firms hope that shopping 
sprees will simply move from Paris to 
Shanghai. In the short run, this might 
boost margins: the likes of Louis Vuitton 
(part of LVMH, the biggest luxury group) 
and Gucci (part of Kering, another French 
giant) charge a third more in China than in 


Europe for the same products. Closing a >> 


Worldwide, by category, 2020 forecast 
% decreaset on a year earlier 


“5 AO HY Is 0 


Beauty aa 
Leather goods ——— 
Shoes SSS 
Clothing ae aes 
Jewellery Ss 
Watches SSS SS SS 


*Estimate tNorth and South America *Constant currency 


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The Economist June 20th 2020 


In search of sparkle 


Market capitalisation, June 17th 2020, $bn 





Hermes 
89.4 713) } 
! , 8.1 
Kering Burberry 
Earnings per share, 2019=100 
140 


FORECAST ‘ 
Hermes 120 


LVMH 








Kering 100 
y Burberry 30 
60 
40 
2019 20 21 70. 


Sources: Bloomberg; Bernstein 


> few flagship stores in high-rent tourism 
hotspots such as Paris or Milan, which usu- 
ally sell half their stock to tourists, could 
Save firms money in property costs. 

Yet any boost to margins may be short- 
lived. The difference between European 
and Chinese prices has narrowed. Those in 
China have been declining as apps make 
international price comparisons easier 
and firms woo shoppers facing ever more 
restrictions from Chinese authorities on 
bringing luxury items home from abroad. 
And more shops on the mainland, in cities 
they would once have deemed déclassé, 
may diminish the aura of exclusivity that 
shopping on Avenue Montaigne in Paris or 
New York's Fifth Avenue confers. The de 
facto discounts were aimed at luring buy- 
ers to the West precisely for that reason. 

The pandemic has accelerated other 
trends. Online sales of luxury goods, at 
7-8% of the total on average, are around 
half those of mass-market fashion retailers 
like H&M and Zara. The closure of shops 
has, predictably, eased some of the reserva- 
tions brands may have about selling their 
wares on the internet. LVMH has said on- 
line purchases are “significantly higher” as 
a Share of sales than pre-pandemic. Sales 
through department stores—which are in 
terrible financial shape, notably in Ameri- 
ca—are also likely to shrink. 

Meanwhile, costs may rise. Though they 
love to show off in-house “artisans” stitch- 
ing handbags and the like, even the poshest 
maisons quietly outsource some of their 
production. Many rely on outsiders for 
more than half their products. These sup- 
pliers are often small family firms in Italy, 
which went into the pandemic with slim 
margins and slimmer financial buffers. 
Luxury groups are now having to assist 
them financially ina hurry lest they disap- 
pear for good. 

All this paints a drab financial picture. 


Sales are forecast to fall by a third in 2020, 
and recover only by 2022 at the earliest. 
That will crimp margins, since luxury 
firms’ costs are largely fixed. Rents must 
still be paid and brands advertised—the 
poshest ones spend the best part of $ibn a 
year on marketing—even as Sales droop. 

In many industries, squished margins 
and falling sales might lead to a slew of 
takeovers. Few expect that to happen in 
luxury. Most of the big players have healthy 
balance-sheets and are expected to find 
ways to return to profitability (see chart 2). 
Many smaller marques are controlled by 
founders or their families, who are loth to 
sell in a downturn. If anything, consolida- 
tion might slow; all eyes are on whether 
LVMH will complete its $17bn takeover of 
Tiffany, an American jeweller, agreed 
weeks before covid-19 struck. 

Not all parts of the industry are equally 
vulnerable. In a crisis, buyers stick to more 
established brands. “They want the best of 
the best,’ says Luca Solca of Bernstein, a 
broker. Good news, then, for the likes of 
Louis Vuitton and Chanel, which have in 
fact pushed up prices in recent months. In 
contrast, brands hoping for a turnaround 
in their fortunes—Burberry is a perennial 
candidate—are less able to gain the atten- 
tion a relaunch might otherwise garner. 

Some segments have also been hit hard- 
er than others. Perfumes and cosmetics 
have held up best: a lockdown is no reason 
to forgo a skincare regime, apparently. 
Fashion houses face bigger problems, as 
cooped-up fashionistas see less need to re- 
plenish their wardrobes. Worse, unlike 
jewellery or handbags, surplus stock of ap- 
parel is rapidly going out of style. Overt dis- 
counts are frowned upon in luxury for fear 
of cheapening precious brands. Most at 
risk are fancy watchmakers like Riche- 
mont, which attract sellers at fairs and 
trade shows that have now been cancelled. 

The question is whether amid this 
shake-up the luxury world can keep its grip 
on the wallets of the world’s big spenders. 
Fears that consumers would opt fora more 
ascetic post-pandemic future are dissipat- 
ing: reports of “revenge shopping’ as China 
emerged from lockdown implies that rich 
folks’ appetite for status symbols remains 
intact. But these worries are being replaced 
by those over Chinese shoppers developing 
a taste for nascent local brands, at the ex- 
pense of the old-world stalwarts. 

The biggest potential changes may con- 
cern the designers themselves. By lateJune 
the most exalted would normally start dis- 
playing autumn and winter collections in 
shop windows. This year they will make up 
for lost time by selling their summer sea- 
son through the summer, as might seem 
sensible anyway. Giorgio Armani, an Ital- 
ian veteran, has argued this should become 
the new norm. What a bold fashion state- 
ment that would be. @ 


Business 


Race in Silicon Valley 


Beyond the pale 


PALO ALTO 
The technology industry faces up to its 
diversity problem 


O GET A Sense of diversity in tech, takea 
T stron on University Avenue in Palo Alto, 
a city at the heart of Silicon Valley. Before 
the pandemic, if you encountered a black 
person, the chances were they worked ina 
local shop. African-Americans account for 
3% of workers at America’s five biggest 
technology firms (see chart) and probably 
less at smaller ones. About one in 50 part- 
ners at venture-capital (vc) firms is black. 
The figure among vc-financed entrepre- 
neurs is one in 100. Such dismal numbers, 
and Silicon Valley’s meritocratic preten- 
sions, help explain why tech’s response to 
the killing of George Floyd has been louder 
even than other industries’. Will outrage 
lead to lasting change? 

Pushed by a left-leaning workforce, big 
tech now regularly takes an activist stance 
on important issues, from immigration to 
the pandemic. Yet even by these standards, 
the reaction to the Black Lives Matter prot- 
ests has been remarkable. Firms offered 
donations to race-related charities, set up 
funds to finance startups by non-white 
founders, stopped selling controversial 
technologies suchas facial recognition and 
vowed to purge their software of racist lan- 
guage. Apple and YouTube (part of Google) 
each pledged $100m to combat racism with 
educational schemes and support for black 
artists. On June 17th Google said it would 
raise the share of “under-represented 
groups’ in leadership by 30% by 2025. 


Yet corporate activism will amount to >> 


ras 
Monochrome 


United States, employees in technology jobs 
By race, % 








White MWAsian © Hispanic 
®@ Black Multiracial/other 
Apple Facebook 100 
50 
; | 0 
2014 19 2014 19 
Google* Microsoft 100 
50 
| 0 
2014 19 2014 19 
Source: Company *Includes “undeclared” before 2016 
reports TNo data #Includes double-counting 


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54 Business 


> little if tech firms and their financiers do 
not change how they operate, says Sydney 
Sykes, co-founder of BLCK VC, a group ona 
mission to swell the ranks of black venture 
capitalists in America. Companies must 
make more of an effort to promote and re- 
tain minority employees. vc firms have to 
examine why they often reject pitches by 
minority entrepreneurs; a simple “just 
can't get excited about this” is no longer 
enough. They should also broaden their 
professional networks beyond the usual 
lily-white crowd, argues Elliott Robinson 
of Bessemer Venture Partners, abig vc firm. 


Since diversity, particularly on gender, 
became a hot topic in the tech industry a 
few years ago, progress has been slow. But 
Ms Sykes believes things will speed up 
now. Customers and employees want it. 
And the firms have started to twig that lofty 
statements and charity do not suffice. Face- 
book’s chief diversity officer, Maxine Wil- 
liams, now reports directly to Sheryl 
Sandberg, the firm’s number two (though 
not to its boss, as some would like). At Red- 
dit, a popular discussion website, a white 
co-founder, Alexis Ohanian, stepped down 
from the board to make way for a black re- 


Waging war On recessions 


An early analysis of Denmark’s furlough scheme 


INCE THE emergence of the welfare 
S state, adults who want to work have 
generally found themselves in one of two 
positions: earning a wage from their job 
or receiving unemployment benefits. 
The pandemic has led many people to 
find themselves ina halfway stage— 
furlough. This often involves the state 
paying a large slice of employees’ wages 
so that firms can keep them on the pay- 
roll during the lockdown. 

How effective is this approach? A new 
paper™* by Morten Bennedsen of INSEAD 
business school in France and colleagues 
Surveyed 8,781 Danish firms with any- 
where between three and 2,000 employ- 
ees. Around two-thirds of the firms said 
that the effect of the pandemic on their 
revenues had been negative, or very 
negative. Of those companies that had 
experienced a fall in revenues, the medi- 
an decline was 35%. 

The Danish government offered a 
variety of financial-aid programmes to 
firms, including a furlough scheme 
which paid 75% of salary costs (subject to 
a cap) to eligible companies. The aca- 
demics found that 56% of the firms 
surveyed had taken some form of gov- 
ernment aid and this was true of almost 
all businesses that had suffered a rev- 
enue decline of more than 50%. Unsur- 
prisingly, companies in the most dis- 
tressed industries were most likely to 
have taken assistance. 

The aid seemed to work. Firms that 
received it laid off fewer workers and 
furloughed more people than firms 
which received no aid at all. But, as the 
authors of the study point out, this defi- 
nition of success might be subject toa 
selection bias—firms that wanted to 
furlough workers may have been likelier 
to apply for aid. 

So they also asked firms a counterfac- 





tual question: what decisions would they 
have taken had they been unable to get aid? 
On this basis, the researchers estimate that 
taking the aid increased a firm’s fur- 
loughed workers as a share of its total 
workforce by about 20 percentage points, 
and decreased the share of laid-off workers 
by almost the same amount. 

If these findings are replicated else- 
where, furlough schemes may be adopted 
in future recessions. Some commentators 
point to the record of Germany, which 
suffered a much smaller rise in unemploy- 
ment than other rich countries during the 
recession in 2008-09 because of ascheme 
that subsidised short-term working. 

There are two obvious concerns about 
such support schemes. The first is the cost. 
The British scheme, which started in 
March, is expected to cost around £60bn 
($75bn) by the scheduled end in October, 
ora bit less than 3% of GDP. The second 
problem is that such schemes may prevent 
the necessary role that recessions play in 
“creative destruction”, whereby resources 
are reallocated from failing businesses to 
successful ones (see Free exchange). The 


The Economist June 20th 2020 


placement, Michael Seibel, boss of y Com- 
binator, a startup school. On June 17th Ap- 
ple said it would replace its diversity chief. 

Mr Robinson has long lamented the 
tech industry’s “diversity theatre”: grand 
Statements followed by little action. But 
even he is somewhat hopeful. Thanks to 
smartphones, he says, whites can see for 
themselves how black people are treated— 
and want it to stop. He knows all too well: 
he has been forcibly restrained by police 
three times in his life, for no reason other 
than the colour of his skin. The last time 
was not far from University Avenue. @ 





survival of “zombie” companies may 
make the next recovery less vigorous. 

On cost, the counterargument is that 
widespread job losses lead to deep reces- 
sions and thus sharp declines in govern- 
ment revenues. They can also be bad 
news for laid-off workers who may take 
years to find another job. Paying money 
upfront to reduce the severity of a reces- 
sion can thus bea good investment in 
both social and economic terms. 

It would be great if governments 
could save only companies that havea 
viable long-term future. The analogy 
might be an old rule of thumb among 
central bankers that they should lend 
money in financial crises to banks that 
have a liquidity problem, not asolvency 
one. In practice, however, financial crises 
in recent decades have been so acute that 
central banks have mostly been unable or 
unwilling to discriminate. Similarly, 
while governments have imposed condi- 
tions on wage-support schemes in the 
current crisis, their main priority has 
been to dole out aid as quickly as pos- 
sible in order to save jobs. 

A lot more research is clearly needed 
to see whether furlough support 
schemes will have adverse long-term 
economic effects. The longer the 
schemes are in place, the more likely it is 
that market distortions will occur. But 
the principle that governments should 
intervene to support struggling banks 
and unemployed workers, as a way of 
reducing the severity of recessions, has 
long been established. It is conceivable 
to think that furlough schemes might 
eventually be viewed in the same light. 


* “The impact of public aid programs on 
distressed firms: Evidence from COVID-19 in 
Denmark”, by Morten Bennedsen, Birthe Larsen, 
lan Schmutte and Daniela Scur 


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The Economist June 20th 2020 


Samsung 


No end in sight 


SEOUL 
An old scandal won't stop haunting 
South Korea’s biggest conglomerate 


EE JAE-YONG has seen a fair share of pri- 
Lion cells. Samsung’s de facto boss, and 
grandson of its founder, spent nearly a year 
behind bars for bribery before his sentence 
was suspended in February 2018. Then, on 
June 4th, prosecutors asked a court to have 
Mr Lee and two other executives from 
South Korea's biggest conglomerate arrest- 
ed ahead of indictments on fresh charges 
of unfair trading, stock-price manipula- 
tion and violating accounting rules, citing 
concerns that they might destroy evidence. 

The judge demurred and declared that 
Mr Lee could await the start of his latest 
trial at home, rather than in police custody, 
arguing that the prosecution had already 
amassed enough relevant evidence. Al- 
though critics spied a certain leniency to- 
wards Mr Lee at work in the ruling, it does 
not mean that his or Samsung’s legal trou- 
bles are anywhere near over. 

The latest allegations by state prosecu- 
tors relate to the role Mr Lee allegedly 
played in manipulating the terms of a 
merger between two Samsung affiliates, 
Samsung C&T and Cheil Industries. The 
tie-up cemented his control over the group 
in 2015. (Three executives have already 
been sentenced to prison for hiding or de- 
stroying evidence related to the investiga- 
tion.) The bribery charges that saw him 
locked up were also related to the merger. 
Last year South Korea’s Supreme Court or- 
dered a retrial in that case. (Samsung and 
Mr Lee deny any wrongdoing.) 

Shortly before prosecutors requested 
the latest arrest warrant for Mr Lee, Sam- 
Sung asked them to convene an external 
committee to opine on whether the char- 
ges merited a trial. (The committee is due 
to issue its non-binding recommendation 
by July.) Neither case is likely to be resolved 
before 2021. Both could land Mr Lee behind 
bars once again. 

The heightened legal scrutiny and un- 
certainty casts a shadow over the group’s 
decent performance in the pandemic. Sam- 
sung Electronics, the group’s listed crown 
jewel, reported higher sales and stable pro- 
fits in the first quarter. In April Samsung 
Biologics, a biotech arm part-owned by 
Samsung C&T, signed a $362m deal to make 
an antibody treatment against covid-19. 

The affair may also hurt the group’s ef- 
forts to get back in South Koreans’ good 
graces. In May Mr Lee apologised to his 
compatriots, acknowledging that the 
group had “not always strictly followed 


<del 2d 


Business 


Chopped and screwed 


SHANGHAI 
Why corporate disputes in China often revolve around rubber stamps 


HINA IS IN the vanguard of new tech- 

nology, from facial recognition to 5G 
networks. Many Chinese firms, though, 
rely on something from an earlier age: a 
hard, usually rubber chop with a firm’s 
name engraved on it, to be dipped in 
crimson ink and stamped on important 
documents. Chopping is seen as more 
authoritative than a mere signature. The 
2,000-year-old tradition may seem 
quaint. But in China, who controls the 
chop controls the company. 

Consider three ongoing kerfuffles. On 
June 4th the board of Arm China, the 
Chinese joint venture of a chip designer 
owned by Japan's SoftBank, voted to 
remove its boss, Allen Wu. Just one snag: 
Mr Wu refused to go. Because he still 
holds the chop, he has continued to actin 
Arm China’s name, and threatened legal 
actions to defend his position. A week 
later Bitmain, which makes bitcoin- 





fs if 
-—— | |(On 


Old ways are hard to stamp out 


laws and ethics”. He pledged betterment, 
including an end to dynastic succession 
and to the group's hostility towards labour 
unions. Samsung has also joined the fight 
against covid-19 by keeping its factories 
running and donating equipment to hospi- 
tals at home and abroad. All the self-flagel- 
lation was working: one widely cited analy- 
sis of online comments found that public 
sentiment towards Samsung improved fol- 
lowing Mr Lee's apology. 

More images of him emerging from 
courtrooms looking sheepish may reverse 
that trend. That may be a reason why Sam- 
sung has been unusually vocal in defend- 
ing its boss against the latest charges. On 


mining computers, announced that it 
had replaced its old chop witha new one. 
They looked virtually identical—Bit- 
main’s Chinese name ina red circle 
around a star—except for a new Serial 
number. But it was enough to indicate 
that one of the feuding co-founders, 
Micree Zhan, now has the upper hand. 

The oddest recent chop bust-up oc- 
curred in April. Li Guoqing, the ousted 
co-founder of Dangdang, a once-popular 
e-commerce platform, broke into its 
headquarters and, ina bid to retake the 
company, removed dozens of its official 
chops (besides the main chop, others are 
used for things like contracts and tax 
receipts). Dangdang declared the seized 
chops to be invalid. But on June 13th it 
was reported that the police had cleared 
Mr Li of wrongdoing, implying the chops 
are his for now. 

Chops have figured in business fights 
elsewhere. In 2007 Russian police seized 
seals from Hermitage, an investment 
firm owned by Bill Browder, a deported 
financier, and used them to re-register its 
companies under others’ names. Butin 
2015 Russia eliminated the need for 
company Seals. In Japan and South Ko- 
rea, where chops are still used, tussles 
over them are rare. 

In China’s sharp-elbowed business 
world chop rows remain more com- 
mon—and mostly unreported. Managers 
sometimes misuse Seals to enter side 
contracts. Lawsuits to reclaim achop can 
drag on, says Eric Carlson of Covington & 
Burling, alaw firm, so many cases are 
resolved out of court. But, he notes, 
technology is catching up with tradition. 
China is starting to deploy electronic 
chops, which are easier to monitor—and 
to strip from aggrieved wielders. 


June 7th, three days after the prosecutors 
requested Mr Lee’s arrest, Samsung Elec- 
tronics sent a statement to reporters reiter- 
ating that all activity relating to the merger 
had been “legal in compliance with rele- 
vant regulations and procedures’. It plead- 
ed with them to refrain from “immoderate 
reports” that could damage the firm, and by 
extension the national economy, at a time 
of crisis. 

Stressing lofty principles such as the 
national interest over petty concerns like 
law-abidance is a well-worn argument 
among South Korean conglomerates that 
get into trouble. The coming months will 
show ifitis wearing thin. @ 


55 


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56 Business 


JAB Holding 


The Reimann hypothesis 


BERLIN 


A peek inside one of Europe’s biggest—and most introverted—family-owned 


companies 


HE REIMANNS are aS fabulously rich as 

they are faceless. On turning 18, each of 
Albert Reimann’s nine children signed a 
codex, pledging to stay out of Benckiser, 
the family chemicals business in Ludwigs- 
hafen, Germany, and never show their face 
in public. Reimann died in 1984, leaving 
each of his offspring with 11.1% of his com- 
pany. Good luck finding a photograph of 
any of them, including the five who have 
sold their stakes in the family concern. Its 
public face is Peter Harf, a Harvard-educat- 
ed manager whom Albert hired in1981as an 
adviser. A restless sort, with a sharp mind 
and a dislike of sharp suits, which he 
spurns for jeans and colourful shirts, Mr 
Harf transformed Benckiser from a medi- 
um-sized manufacturer typical of Ger- 
many’s Mittelstand into an international 
consumer-goods powerhouse overseeing 
operating companies worth some $120bn. 

JAB Holding, as the Luxembourg-based 
group was renamed in 2012 in honour of its 
founder, Johann Adam Benckiser, is as 
anonymous as its camera-shy owners. Its 
assets are anything but. Having sold off the 
last of its stake in Reckitt Benckiser, a Lon- 
don-listed consumer-goods group, in 2019, 
JAB has focused on three main business 
lines. The first two revolve around caffeine 
and carbs. Over the years JAB has snapped 
up purveyors of coffee (like Keurig and Ja- 
cobs) and places to consume it (Peet’s Cof- 
fee and Pret A Manger, among others), as 
well as makers of sugary drinks (Dr Pepper) 
and sellers of snacks (suchas Krispy Kreme 
Doughnuts and Panera Bread). These oper- 
ations accounted for 85% of JAB Holding’s 
estimated €25bn portfolio in 2019. 

Most of the rest sat in beauty. In1992 Mr 
Harf orchestrated JAB’s purchase of Coty, a 
maker of perfume, from Pfizer, an Ameri- 
can drugmaker, for $440m. Coty was listed 
in New York in 2013, and in 2016 Mr Harf 
added to it 41 beauty brands, including 
Wella (Shampoo), Max Factor and Covergirl 
(make-up), bought from Procter & Gamble 
(P&G), an American giant, for $12bn. 

Alongside JAB Holding, which manages 
the Reimanns’ money (and that of Mr Harf, 
whom they treat almost like a family mem- 
ber) is a larger sister holding, JAB Consum- 
er Fund (JCF), with investments in the same 
group of businesses. It was set up in 2014 
with cash from other wealthy families, in- 
cluding the Peugeots, a French carmaking 
clan, and Colombia’s Santo Domingo beer 
dynasty. JcF adds complexity to the federa- 





i] 
Harf-Goudet corollary 
JAB Holding, portfolio value, €bn 


® Reckitt Benckiser (cleaning products) 
© Coty (cosmetics) Acorn (coffee & soft drinks) 
@ JAB Beech (fast-casual restaurants) Others 


Ds 


TT hk 
Ea 


15 





ZO ee lee Gr > liane. ano 


Source: Moody's 


tion, which comprises several intermedi- 
ate holding companies co-owned by JAB 
and JcF that in turn control underlying op- 
erating assets. But it enables the structure 
to take on more debt, which Mr Harf has 
used to enlarge the empire with deals like 
the $19bn purchase of Dr Pepper Snapple in 
2018. The two vehicles are run jointly by Mr 
Harf and Olivier Goudet, a former finance 
chief at Mars, a huge American confection- 
er (which is also family-owned). An admir- 
er of Warren Buffett, Mr Harf likes to refer 
to the JAB-JCF as Benckiser Hathaway. 

Like the famed American investor's 


In need of a makeover 


The Economist June 20th 2020 


conglomerate, JAB favours long-term bets 
on businesses that are easy to understand. 
What sets it apart from Berkshire Hatha- 
way, and many family offices, is a focus on 
a few big assets. According to Moody's, a 
credit-rating agency, 96% of JAB Holding’s 
funds were in the three biggest last year 
(see chart). Investor AB, another large and 
complex investment fund, controlled by 
Sweden’s Wallenberg clan, has 37% of its 
portfolio in its top three assets. Mr Harf 
wants JAB Holding to own a stake of 
30-40% in each portfolio firm, so that even 
if JcF’s backers exit, the Reimanns would 
retain the ear of the operating firms’ CEOs. 

Such concentration is a boon when 
things are going well, as they have been 
with the coffee business, which Mr Goudet 
envisaged as a rival to Switzerland’s Nestlé. 
Defying the covid-19 pandemic, JAB listed 
16.5% of shares 1n JDE Peet’s, the result ofa 
merger between Jacobs Douwe Egberts and 
Peet’s Coffee, at the end of May in Amster- 
dam. Out of ten “smart investors”, nine 
warned Mr Harf to wait with the Ipo, he 
says. In the event, the offering raised a caf- 
feinated €2.25bn, making it Europe's big- 
gest IPO this year and valuing the firm at 
€15.6bn. The share price surged by 15% on 
the first day of trading. The outlook for 
JAB’s other cafés, starved of customers 
amid pandemic lockdowns, may improve 
as economies reopen. 

The same cannot obviously be said of 
the cosmetics arm. Mr Harf may have over- 
paid for P&G's brands and folding them into 
Coty has proved tricky. Coty’s market capi- 
talisation has shrunk by more than 80% 
since 2016, to $3.7bn. In May KKR injected 
€750m into the debt-laden business, which 
will eventually give the private-equity firm 
a 60% stake in a professional-beauty firm 
to be hived off from Coty. Mr Harf himself 
will run the consumer operation. On June 
ist he took over as Coty’s CEO after it went 
through four chief executives in five years, 
to clean up what he calls “the greatest 
blemish on my vest’. 

“Overall Mr Harf has done well for the 
Reimanns,’ says Jean-Philippe Bertschy at 
Vontobel, a Swiss bank. Despite Coty’s pal- 
lid record, JAB investor returns have aver- 
aged 15% a year Since 2012. But Mr Bertschy 
cautions JAB against more break-neck ac- 
quisitions. Previous ones provoked the de- 
parture last year of JAB Holding’s chairman, 
Bart Becht, who reportedly quit after failing 
to convince the other partners to scale back 
expansion and focus instead on running 
the companies under their wings better. 

Mr Harf will now try to do just that. The 
Spry 74-year-old plans to overhaul Coty, 
Starting with distribution. That will not be 
easy. Cosmetics is cut-throat and Coty 
must finda niche between the two giants of 
the industry, LOréal and Estée Lauder, and 
trendy “indie” brands. At least Mr Harf has 
plenty of coffee to keep him going. & 


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The Economist June 20th 2020 


Schumpeter | Zoom and gloom 


The dangers of kowtowing to China 





EW AMERICAN companies have done as well during the covid-19 
F crisis as Zoom. The lifesaver of lockdown joins a small coterie 
of tech firms whose product, like Google’s, you no longer need to 
explain to grandmas. Zoom’s staggering success was made clear 
this month when it reported a 169% surge in year-on-year sales 
during the three months to April 30th. Daily users ballooned from 
10m in December to 300m in April; profits soared alongside. Even 
analysts, rarely the most expressive of writers, let rip. One report 
Started with “Wow”. Another, with “Holy Cow”. 

Zoom’s achievements go beyond mere lucre. Its videoconfe- 
rencing tools have the intuitive simplicity of an Apple product. It 
has made working from home feel not clunky, but chic. Moreover, 
its 50-year-old founder, Eric Yuan, cuts an intriguing figure. He 
has ridden an emotional roller-coaster this year as his company 
faced not just adulation, but scathing criticism for privacy lapses, 
data breaches and Zoom-bombings. Yet the speed with which he 
acknowledged the setbacks, and rolled out a 90-day plan to fix 
them, offers acase study of aleader who tries to learn from his mis- 
takes. On June 17th, for instance, Zoom said it was introducing 
end-to-end encryption for all users. 

But Mr Yuan, an American citizen, has a more intractable pro- 
blem. It concerns his country of birth, China. On June u:th it be- 
came clear how vulnerable Zoom was to the long arm of the Com- 
munist state when the firm, which prides itself on “the open 
exchange of ideas”, admitted it had temporarily shut down the ac- 
counts of three critics of the regime outside China. Investors bare- 
ly noticed. Four days later Zoom’s market capitalisation reached a 
record high of $67bn. But it showed with devastating clarity how 
tech firms struggle to bridge the digital chasm between China and 
America. This poses an acute business risk for Zoom. 

Zoom’s relationship with China is complex. The American 
company has meagre sales on the mainland. But 700 of its staff are 
based there, developing global products. It also has servers in Chi- 
na that it says are geo-fenced to store Chinese data only (though in 
April it admitted the rule may have been breached by mistake). It 
says having its engineers in China helps reduce costs. It also hopes 
to increase sales to China. But its operations there force it to abide 
by Chinese law. Hence it suspended Zoom meetings with users in 


Business 


China and beyond commemorating the 21st anniversary of the 
massacre around Tiananmen Square on June 4th, which the Chi- 
nese government, hearing about them on social media, consid- 
ered illegal. It also temporarily blocked an activist’s account in 
Hong Kong. Zoom admits it went too far, says it is developing tools 
to tackle the problem and pledges that requests from the Chinese 
government will no longer affect anyone outside mainland China. 

That is a hard promise to keep for any company with operations 
in China. American values of free speech are at odds with those of a 
surveillance state. American firms that do business in China are 
used to treading a fine line. Those with a lot of Chinese customers 
and operations, suchas Apple, seek to obey Chinese rules, but only 
in China. They argue that their Chinese businesses are ring-fenced 
from the rest of the world. Free speech and data security elsewhere 
are not compromised. Firms which, like Facebook, are barred from 
penetrating the Great Firewall can ignore China's rules completely. 

Zoom is different. It cannot easily fence off its Chinese opera- 
tions from the rest of the world because its Chinese product devel- 
opers are integral to its global business. Yet its activities in China 
mean it falls under laws that require companies to co-operate with 
the state and its intelligence services. That raises security and free- 
Speech concerns not just within China but beyond it, too. 

The repercussions have started. Some governments, such as 
Britain’s, have reportedly been warned by spy agencies to avoid se- 
cret discussions about China on Zoom. China hawks in America’s 
Congress are demanding that the company answer questions 
about its relationship with the Chinese government. Academics 
note that Chinese students at American universities may be par- 
ticularly at risk if their inability to travel to America for covid-re- 
lated reasons means they have to attend lectures in China via 
Zoom. James Millward of Georgetown University says it could chill 
academic freedom. He called on universities to develop an urgent 
“Plan B” to Zoom. End-to-end encryption to protect privacy may 
provide some reassurance. Chinese law, however, makes it hard to 
guarantee that the state will not seek to intrude. 

That leaves Zoom with two unpalatable options. The first is the 
route that ByteDance, a privately held Chinese tech giant, is taking 
to ensure its short-video app, TikTok, is trusted in America. This 
means replacing some engineers in China with ones in America, 
and perhaps cutting off the Chinese business from the rest of the 
world. Such a rearrangement is hard to swallow for a firm like 
Zoom, whose mission is to foster global communication. It would 
cost time and money. 

The alternative is to continue to bestride both systems and ac- 
cept the consequence that trust—arguably the most important at- 
tribute of acommunication tool like Zoom—is at the mercy of the 
Chinese Communist Party. Many users will have no problem with 
that; Zoom book clubs may be happy to bore Chinese eavesdrop- 
pers to death. But on sensitive topics in business and politics, 
wariness should prevail. Even though Zoom says there is no “back 
door’ enabling snooping on its users, in the back of some minds is 
the thought of using a Soviet telephone during the cold war. 


The rebirth of distance 

Zoom’s business may suffer as a result. Cisco’s Webex, Microsoft's 
Teams and Google’s Meet can easily compete for its most sensitive 
clients. More significant, the kerfuffle reinforces how geopolitics 
is splitting the global internet into rival camps. Tech companies 
are increasingly facing the invidious choice of which side of the di- 
vide to be on. The word for that is not “wow”. Itis “ugh”. 


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aa Briefing Green investing 


Hotting up 





Financiers talk ever more about climate change. How much can they do about it? 


N THE MAYFAIR Office of Chris Hohn, the 

boss of TcI, a hedge fund, an enormous 
photograph of a melting iceberg hangs on 
one wall. Robert Gibbins, the founder of 
Autonomy Capital, another London hedge 
fund, says his desk is adorned with the de- 
formed remains of acar bumper, melted by 
an Australian wildfire. An interest in mod- 
ish office decor is a long-standing feature 
of high finance. An interest in climate 
change, though, was until recently rare; the 
preserve of boutique investment houses 
and pokey back offices in the large asset 
managers. Nowit is all the rage. 

One reason for this is the realisation 
that extreme weather events pose threats 
to businesses seeking investment. Last 
year PG&E, a Californian utility, was forced 
into bankruptcy for its role in sparking 
wildfires. Another reason is that govern- 
ments are taking steps to limit the emis- 
sion of greenhouse gases that could have 
real impacts on firms’ future revenues. A 
third is pressure from clients. Large asset 
owners, including Japan’s Government 


Pension Investment Fund, the world’s big- 
gest, are badgering the companies which 
manage their money to attend more to the 
environmental, social and governance 
(ESG) bona fides of the companies they put 
money into. A fourth factor is that asset 
managers are facing shrinking margins. By 
offering their clients various sorts of 
greenery they can also charge higher fees. 


Hungry planet 

The greening trend could be a force for 
good in the fight to reduce climate change. 
But the role that financial services can play 
must not be misunderstood or overstated. 
The sector is responding to changes in gov- 
ernment and broader circles of opinion, 
not driving change itself. And there is a 
limit as to how much it can do. Calcula- 
tions by The Economist suggest that the 
amount of direct control over carbon emis- 
sions exerted by companies in which in- 
vestors hold sway is lower than is often 
thought. Less than a quarter of industrial 
emissions come from companies that can 


The Economist June 20th 2020 | 








be influenced by investors in stockmark- 
ets. And when one gets away from the key 
sectors of energy and natural resources, the 
amount that can be done by green invest- 
ment may not be very muchatall. 

In 2019 the greenhouse emissions from 
human activity—mostly carbon dioxide, 
but with contributions from methane, ni- 
trous oxide and other gases too—had the 
warming effect you would get from 55bn 
tonnes of carbon dioxide. The carbon diox- 
ide from fossil-fuel emissions and indus- 
trial processes accounted for 37bn tonnes. 

In order to see how much of this might 
be amenable to investor-led action The 
Economist analysed emissions disclosures 
from over 5,000 publicly listed companies 
which between them account for about 
90% of the value of the world’s stockmark- 
ets. The number of companies making 
such disclosures has been rising steadily in 
America (from 53% of the companies in the 
S&P 500 five years ago to 67% today); over 
the same time it has shot up in Europe and 
Japan, from 40% to 79% of companies in 
the Euro Stoxx 600 and from 13% to 46% on 
the Nikkei 225. 

Those disclosures differentiate be- 
tween the emissions that companies make 
directly (which the Greenhouse Gas Proto- 
col, widely used for such reporting, calls 
“scope-one” emissions) and “scope-two” 
emissions which are produced by the com- 
panies which provide them with energy, 


mostly in the form of electricity. The scope- >> 


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The Economist June 20th 2020 


>» two number is vital to assessing the emis- 
sions caused by acompany’s activities, but 
in order to look at the total emissions we 
considered only scope one, since adding in 
scope two leads to double-counting. 

As you would expect, the largest emis- 
sions come from companies which burn 
fossil fuels in the normal course of their 
business: those that run fossil-fuel power 
stations, or fleets of aircraft or steelworks. 
In Europe ArcelorMittal is the biggest emit- 
ter because steelmaking requires the burn- 
ing of coal. In America the biggest opera- 
tional emitter is ExxonMobil, which unlike 
many large companies produces much of 
the electricity and heat that it uses itself. 

Using the emissions disclosed by these 
companies, we estimated emissions for 
non-disclosing firms on the basis of those 
disclosed by similar firms in the same sec- 
tor with comparable revenues. Given thata 
firm’s decision whether to disclose and its 
emissions intensity may not be indepen- 
dent, this step could introduce error. 

Totting everything up reveals that each 
year publicly traded companies emit 
greenhouse gases equivalent to 1obn 
tonnes of carbon dioxide from their opera- 
tions (See chart 1). Perhaps a quarter of 
those are produced by listed firms that are 
majority owned by governments. That 
leaves eight gigatonnes of emissions that 
stock markets can influence directly. That 
1s14% of the world’s total emissions, 0r19% 
of the emissions related to energy use and 
industrial processes. (Those estimates un- 
dercount oil emissions. If you add the 
emissions from the oil sold by institution- 
ally controlled energy firms, part of what is 
called “scope three” emissions, then it in- 
creases to 23% and 32%, respectively.) 

Where are the rest of the emissions 
coming from? In large part from consum- 
ers of those companies’ wares. An oil com- 
pany’s scope-one emissions include all the 
carbon dioxide and methane it gives off in 
its operations, but not the carbon dioxide 
given off when its wares are burned in en- 
gines and boilers. Attempts to take this into 
account are found in the scope-three dis- 
closures, which cover the entire value 
chain of a business from the extraction of 
its raw materials through its suppliers and 
on to its end users. 

Only two-fifths of the firms in the s&p 
500 and half of those in the Euro Stoxx 600 
disclose a figure for their scope-three emis- 
sions. The figures are, unavoidably, larger 
than for scope one. They are biggest for the 
extractive industries. Of the companies in 
our dataset that disclosed their scope-three 
emissions, Royal Dutch Shell topped the 
list, followed by BHP, a mining firm. 

Large scope-three emissions point to 
business models that depend on either 
Suppliers or customers emitting green- 
house gases in bulk. This makes them hard 
to change. A company can reduce its scope- 





— 
Where the carbon comes from 


Direct emissions, 2018 or latest, gigatonnes of CO, equivalent 


All 


Briefing Green investing 


Carbon intensity* 
100 200 400 800 1,6007 
| it ie 


Publicly listed firms 
Publicly listed 50 
firms 
Land-use change, / 40 | 
forestry and ExxonMobil | 
agriculture 30 Utilities 
Other energy and 10 a 
process emissions 
10 | Metals and mining 
— 11.2 
0 Uniper ArcelorMittal 





Sources: WRI; UN Environment Programme; Bloomberg; The Economist *Tonnes of CO,e per $ revenue, log scale TRWE is an outlier at 7,614 


one emissions by changing its internal 
processes, and its scope-two emissions by 
changing its electricity supplier—for ex- 
ample, choosing one that uses a lot of re- 
newable energy sources or nuclear power 
plants. To change its scope-three emis- 
sions, though, it needs to change either the 
practices of its suppliers or, harder still, 
what it sells. 

The first may be feasible through in- 
vestment. The Swedish furniture retailer 
IKEA has a €200m ($224m) fund to help its 
suppliers transition to using renewable en- 
ergy, among other things. Changing what 
happens downstream, though, may be 
harder. As long as BHP goes on Selling iron 
ore to steelmakers who use coal to smelt it, 
BHP will have high scope-three emissions; 
as long as Royal Dutch Shell sells oil and gas 
it will, too. 

Scope-three emissions are highly con- 
centrated within a small number of firms. 
When The Economist looked at scope-three 
emissions with the same methodology we 
used for scope-one emissions, 220 of our 
5,000-0odd companies, with a value of 





about $14trn, accounted for 84% of the to- 
tal carbon footprint. This fits with a sepa- 
rate analysis by the Carbon Disclosure Pro- 
ject (CDP), a group which tracks firms’ 
climate disclosures. In 2015 the cpP looked 
at 224 fossil fuel firms and totted up scope- 
one emissions and a subset of scope-three 
emissions: emissions that come from the 
use of a firm’s products. The cpP found that 
between them the companies and their 
wares produced the equivalent of 31bn 
tonnes of carbon dioxide. 


Divided right in two 

In our analysis 76% of the heavy emitters 
are majority investor-owned. And this 
ownership is also highly concentrated. 
When the stakes that they hold in a com- 
pany are weighted according to that com- 
pany’s emissions, the biggest 250 financial 
firms control about 86% of the emissions 
from the investor-controlled companies 
with the highest scope-three emissions. 
The financial firms with the largest hold- 
ings by this measure are the biggest asset 
managers, such as BlackRock (10% of the 
emissions from the _ investor-owned, 
heavy-emitters subgroup), Vanguard (6%) 
and State Street Capital (3%). 

Some of these investors, including 
BlackRock, are part of Climate Action 100+, 
a group of institutional investors with over 
$4otrn in assets. They ask firms to set 
emissions-reduction targets, disclose car- 
bon-footprint data and generally clean up 
their act. Of the 161 firms targeted by 
CA100+, 70% have set scope-one emissions 
targets. But only 9% have set goals that a re- 
search group called Transition Pathway 
Initiative sees as compatible with the tar- 
get of keeping global warming since the In- 
dustrial Revolution below 2°C. A similarly 
small proportion has made the promise no 
longer to lobby against green regulation 
that CA100+ asks for. 

Rather than trying to change the actions 
of the companies at the heart of the climate 
crisis, most green investment seeks to re- 


59 


ward and encourage companies in all sec- >> 


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60 _ Briefing Green investing The Economist June 20th 2020 


» tors which either emit less than they might = For now stress tests are a work in progress. 


or help others so to do. JPMorgan, a bank, 
estimates that at least $3trn of institutional 
assets are now managed in a way that 
tracks ESG factors. Though that is a lot, itis 
only 4% of total assets under management. 

Hortense Bioy of Morningstar, a re- 
search firm, says that in Europe there are 
about 400 green funds managing €132bn in 
assets. Some simply exclude fossil-fuel 
companies. Others seek out “climate-sol- 
ution firms” developing technologies that 
reduce energy demand. One popular 
green-fund category is “low-carbon”. Low- 
carbon fund managers offer the chance to 
invest in the companies with the highest 
revenues per tonne of carbon dioxide emit- 
ted, either ina given sector or on a given in- 
dex. They face the problem, though, that 
current carbon accounting does not make 
such comparisons easier. Apple has only a 
tiny fraction of Samsung’s operational 
emissions; but Samsung makes things, 
while Apple has others do that for it. 

Nevertheless, carbon intensity may bea 
useful measure (see chart 2). The Economist 
looked at data from firms that disclose 
their operational emissions in the S&P 500 
and Euro Stoxx 600. Calculating carbon in- 
tensity on a variety of measures shows that 
greener firms trade at a premium. Whether 
that means better returns in the long run, 
though, remains inconclusive. 

Perhaps the most obvious avenue for 
green investing is in firms whose technol- 
ogies replace those that emit greenhouse 
gases on a grand Scale. Renewable energy is 
one obvious possibility, but one which 
does not at the moment offer a wide range 
of choices to investors. Only three firms in 
the S&P 500 produce renewable energy, 
making up less than 1% of the index’s mar- 
ket capitalisation. Even among private- 
equity and venture-capital firms only $ubn 
were invested in renewables in 2019, ac- 
cording to BloombergNEF, aconsultancy. 

A study by Mariana Mazzucato of Uni- 
versity College London and Gregor Semie- 
niuk of University of Massachusetts Am- 
herst looked at  renewable-energy 


= 
Who matters most 


Who should be afraid 


Risk of climate change by sector, % 
2018 or latest, log scale 


Physical risk* 








Real estate _— 
o Utilities & Q 
Circle size= Energy | A 
direct emissions Zaid 
Materials 
Other consumer e 2 
o@ Industrials 
1 
‘at 
Baniiiveare Consumer staples as 
i 
® ® Financials 
0:25 
@\T 
O25 
Se a 
0.01 On 1 10 


Regulatory riskt 


*Schroders’ estimate of potential change to enterprise value 
tCarbon price of $75 on direct emissions, as % of market cap 
Sources: Schroders; Bloomberg; The Economist 


investments from 2004 to 2014. Institu- 
tional investors provided 7% of the fund- 
ing and commercial banks provided 12%. 

Another way to reduce emissions by re- 
jigging finance is to make it harder for com- 
panies to get money if either climate 
change or action to avert it poses a particu- 
lar problem to them. This is the idea behind 
the “stress tests” that central banks in Eng- 
land, France, the Netherlands and Singa- 
pore are forcing on banks and insurers: by 
modelling a 4°C world, ora $100/tonne car- 
bon price, they seek to discover how badly 
the banks’ lending to their current portfo- 
lio of clients endangers them. 

So far, these tests are not producing re- 
sults as worrying as some might have ex- 
pected. The central bank of the Nether- 
lands found only 3% of banks’ loan books 
were at risk. This may be because much of 
the data needed for rigorous testing do not 
exist. Daniel Klier of HSBC, a bank, says 
only 12% of the companies in the bank's 
loan portfolio reveal climate data. Insur- 
ance firms tend to have a better grasp on 
which assets are at what physical risks. But 
neither industry has the complete picture. 


Tonnes of CO, equivalent emitted per $1m of revenue, median estimates, 2018 or latest 


0 250 500 
Energy i | 
Utilities 
Materials 
Consumer staples 
Industrials 
Real estate 
Other consumer products 
Information technology 
Communication services 
Health care 


Sources: Bloomberg; The Economist 


750 1,000 


Direct, from: 


~ Organisation's 
activities 


8 2,000 


2 — 


ip250 1,500 


Source of emissions 


Indirect, from: 


@ Electricity use 
© Use of product 


® Purchase of goods & services 
@ Other 


It is also possible that the risks are not, 
in fact, that catastrophic. There are clearly 
businesses which will not survive serious 
action on climate change. For the world to 
limit warming to 2°C nine-tenths of today’s 
coal reserves will have to stay in the 
ground, according to JPMorgan. But this 
hardly means that, in Mr Hohn’s words, 
“Coal is the new subprime.” Western banks 
tend to have little exposure to the energy 
sector. The biggest ten have between 8-14% 
of the total credit exposure of all listed en- 
ergy firms. Their share of exposure to coal 
will be even smaller. 

Chinese banks probably have a much 
bigger share, though disclosure is patchy at 
best. One analysis by UBS, a bank, found 
that between January 2014 and September 
2017, 60% of the financing for the world’s 
biggest 120 coal-plant developers came 
from Chinese banks. The next-biggest 
lenders were Japanese banks (8%) and In- 
dian ones (7%). 

The fact that banks will stay standing if 
coal companies topple does not mean that 
efforts to reduce emissions will have no ef- 
fect on the financial sector. At present only 
20% of world emissions are covered by a 
carbon price. If prices were to increase in 
both their level and the share of emissions 
that they cover, banks and investors would 
need to take notice. Particularly as the pain 
will be spread unevenly across sectors (see 
chart 3). 


Shake and quake 

The IMF thinks that a $75 per tonne price on 
all emissions might keep warming below 
2°C. If you applied such a price to compa- 
nies’ scope-one emissions, pre-tax profit 
in the S&P500 would fall by 8%, and in the 
Euro Stoxx 600 firms by 12%. That over- 
States the damage; the whole idea of carbon 
prices is that they make sensible reduc- 
tions in emissions that were not cost effec- 
tive before. But it gives asense of the extent 
of change that companies and those who 
invest in them would face. 

Axel Weber, chairman of UBS, sees that 
change in truly cosmic terms: “We need to 
build a new universe, not add some galax- 
ies to the existing one.” He envisions a 
whole new financial system centred on a 
carbon price and tradable emission per- 
mits. Secondary markets in carbon futures 
and derivatives would allow investors to 
plan and invest for the long term. 

Such calculations hint at a powerful fu- 
ture for finance, not as a driver of climate 
action, but as its enabler, making it more 
flexible and better able to tap insights and 
capital from investors around the world. If 
that also helps the financial firms doing the 
legwork, that will be all to the good. And if 
it shows up some of today’s green financ- 
ing attempts as window dressing and mar- 
keting wheezes, that will be good, too. & 


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From yields to maturity 


The Fed has been supporting markets. Now it must find ways to boost growth 


T SEEMS AS if there is nobody to whom the 
Federal Reserve will not lend. Since the 
covid-1i9 pandemic wrought havoc on fi- 
nancial markets in March, America’s cen- 
tral bank has promised to buy up to $750bn 
in corporate bonds and $500bn in state- 
and local-government debt. It has stood be- 
hind the market for commercial paper, be- 
hind money-market funds and behind for- 
eign central banks in need of dollars (see 
next story). OnJune15th lenders were invit- 
ed to register for its “Main Street Lending 
Programme’, which will purchase loans to 
small- and medium-sized businesses. The 
Same day it announced that it would buy 
corporate bonds not only through ex- 
change-traded funds, but directly, too. 
Such uninhibited use of its balance-sheet 
brings to mind the words of Walter Bage- 
hot, the primogenitor of modern central 
banking, whose advice for times of stress 
was to lend “to merchants, to minor bank- 
ers, to ‘this man and that man, whenever 
the security is good”. 
The security in this case is mostly a 
guarantee by America’s Treasury to absorb 


some of the Fed’s losses. And yet the biggest 
beneficiary of the monetary fire hose re- 
mains the government itself. Since early 
February the central bank has bought 
$1.7trn of federal debt, equivalent to 163% of 
the government’s entire net issuance in 
2019. On June 1oth it promised to keep buy- 
ing at least $80bn in Treasuries per month. 
Many analysts expect that in September it 
will promise to buy as much as needed to 
keep shorter-term bond yields near zero—a 
policy known as “yield-curve control”. 

In March the Fed’s bond-buying was in- 
tended to calm markets and arrest an 
alarming rise in Treasury yields. It still sees 
its purchases as preserving “smooth mar- 
ket functioning’. But as the memory of 
market stress recedes, its focus will shift to 
stimulating the real economy, about which 
the Fed is gloomy. Its median rate-setter ex- 
pects the unemployment rate to be no low- 
er than 6.5% at the end of 2021. OnJune16th 
Jerome Powell, the Fed’s chairman, warned 
Congress about the potential scars that a 
long downturn might inflict. 

The Fed made a similar transition from 


62 The successes of dollar-swap lines 

63 Looser purse-strings in the euro zone 
63 China's generous poverty measure 
64 The economics of reparations a 
65 Buttonwood: Retail punters 


66 Stranded merchant seamen 














67 Free exchange: Resource allocation 
and covid-19 


supporting markets to stimulating growth 
after the global financial crisis of 2007-09. 
It has not attempted yield-curve control, 
though, since 1951. The possible return to it 
marks a shift in the debate over market in- 
tervention—whether it is more effective to 
set the quantity you buy, or the price you 
pay. Choosing one means leaving the other 
to the whim of your counterparties. In the 
2010s the Fed stuck to buying fixed quanti- 
ties, fearing the unlimited commitment to 
buy that comes with pegging bond yields. 
In any case, economists wielded studies 
that found that bond purchases had a pre- 
dictable impact on yields. 

Yet the attitude of central bankers is 
evolving. That is partly because of recent 
experiments with yield-curve control. In 
2016 Japan began fixing its ten-year bond 
yield around zero; in March this year the 
Reserve Bank of Australia (RBA) started 
pegging three-year yields around 0.25%. 
The evolution also reflects doubts about 
how quantitative easing (QE) works. Some 
economists, such as Gertjan Vlieghe, a rate- 
setter at the Bank of England, and Michael 
Woodford of Columbia University, argue 
that, when markets function normally, QE 
only brings down long-term yields on a 
sustained basis if it signals to traders that 
the short-term interest rate—the more 
humdrum instrument of monetary poli- 
cy—will not rise fora long time. 

Yield-curve control, then, might be a 
more transparent way of signalling the fu- 
ture path of the short-term rate. The RBA, 


62 


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Finance & economics 


Treasury trove 
United States 


Public debt* held by the Federal Reserve 


By maturity, % of total 
) February 5th 2020 June 3rd 2020 


0 Ob 26, 30 40 


T-bills and <1 year | | 

1-3 years —-—__f 

3-5 years tI 

5-10 years ——T 

10-30 years en | 


Sources: Federal Reserve Bank of New York; Bloomberg; 
US Department of the Treasury; The Economist 


» for instance, pegged the three-year yield at 


0.25% in order to underscore its expecta- 
tion that the short-term rate will stay at 
that level for several years. 

Moreover, yield-curve control can send 
the signal while reducing the need to pur- 
chase vast quantities of debt. As long as in- 
vestors believe the central bank’s promise 
to target a certain variable, be it a bond 
yield, an exchange rate or inflation, they 
tend to bring about the outcome on their 
own. The Fed's pledge to buy corporate 
bonds calmed the market in March, for in- 
stance, even though it did not start buying 
until May. So too with yield-curve control. 
In order to back its peg the RBA has bought 
only A$5obn ($34bn), less than 8% of Aus- 
tralia’s public-debt stock. Although some 
analysts regard the Bank of Japan's yield- 
curve Cap as an innovative form of stimu- 
lus, close observers see it as an excuse for 
the central bank to buy less. When it was 
introduced the Bank of Japan kept its exist- 
ing target of buying ¥8otrn ($748bn) of gov- 
ernment debt a year—but then ignored it. 
Before the pandemic, it was buying bonds 
at less than a fifth of that pace. 

Swapping purchases for pegs might 
eventually seem attractive to the Fed. It al- 
ready owns over a fifth of all net govern- 
ment debt, and nearly twice that share of 
longer-dated bonds (see chart). It might 
also prevent seeming clashes between 
monetary and fiscal policy. So far the Trea- 
sury has financed America’s enormous fis- 
cal stimulus almost entirely through short- 
term bills. It will probably refinance that 
borrowing at longer maturities. But doing 
SO puts back into the market the longer- 
dated assets the Fed is buying up in order to 
keep yields low. In the 2010s refinancing 
led to allegations that the Treasury and Fed 
were “rowing in opposite directions”. Were 
the Fed pegging rates, it would offset the ef- 
fect of any Treasury debt-maturity opera- 
tions passively, and avert controversy. 

Working out how best to manage bond 
purchases to boost growth is only a part of 
the daunting task that confronts the Fed. It 
will have to consider, as the economy 


Government-bond yields, % 
By maturity 


me 20 
February 5th 2020 , 
; | : i 


June 16th 2020 





US SIM TSIM I 9 2 ENE a TON CN Shy 


*Treasury bills, bonds and notes. 
Excludes intragovernmental holdings 


emerges from lockdown, how to withdraw 
the vast support it has put in place for the 
private sector, and face losses on some of 
its loans. But getting monetary policy right 
is its most important responsibility—not 
just to lend to “this man and that man’, but 
to ensure that the economy is strong 
enough foreach to prosper. @ 


The Federal Reserve (2) 


Swapping panic for 
calm 


HONG KONG 
America’s central bank shines ina 
global role it resents 


HE FEDERAL RESERVE Steadfastly re- 

fuses to view itself as the world’s central 
bank, which is a pity, because it is becom- 
ing quite good at the job. One sign of its suc- 
cess is the stabilisation of the world’s re- 
Serve currency. The dollar spiked by over 
8% against a basket of six other widely 
traded currencies between March goth and 
20th, as covid-19 panicked investors. But 
now the greenback is roughly back to 
where it was at the beginning of the year. 

Central banks usually concern them- 


Saa6 

Swap shop 

Central-bank use of Federal Reserve 
dollar-swap lines, amounts outstanding*, $bn 





500 
Total — ut 
300 
Bank of 
ank of Japan 500 
European Central Bank 
ast 100 
Emerging markets! 
Se 
Mar Apr May Jun 
2020 


*Settled positions ‘Brazil, Mexico, Singapore and South Korea 
Source: Federal Reserve Bank of New York 


The Economist June 20th 2020 


Selves with their own country’s money 
supply, which is chiefly composed of de- 
positors’ claims on the country’s banks. 
But the supply of dollars extends far be- 
yond national boundaries. Last year, banks 
outside America’s jurisdiction had dollar 
liabilities worth over $10trn, reckon Inaki 
Aldasoro and Torsten Ehlers of the Bank for 
International Settlements (BIS). 

To fund themselves, these banks rely 
heavily on selling short-term dollar liabil- 
ities, including certificates of deposit and 
commercial paper, to investors. The tradi- 
tional buyers of this paper are “prime” 
money-market funds (which are a little 
more adventurous than funds that stick to 
government bonds and the like). After the 
pandemic shattered global market confi- 
dence, investors began pulling their mon- 
ey out of these funds, and the funds, in 
turn, stopped buying the banks’ paper. 
That forced the banks to scramble for other 
sources of funding. Borrowing from each 
other became dearer (at the height of the 
panic, banks had to pay a risk premium of 
about1.4 percentage points). And it became 
costlier to obtain dollars through foreign- 
exchange “swaps’, in which one party bor- 
rows dollars from another, while simulta- 
neously lending them euros, Say, or yen. 

As the offshore market is not fenced off 
from America’s own markets, these stress- 
es washed onshore. That gave the Fed an ex- 
cuse toact. On March1sth it eased the terms 
of its swap lines with central banks in Brit- 
ain, Canada, the euro area, Japan and Swit- 
zerland. Four days later it extended addi- 
tional lines to nine others, including the 
central banks of four so-called “emerging 
markets” (Brazil, Mexico, Singapore and 
South Korea). 

The Fed has always been uncomfortable 
making quasi-diplomatic decisions about 
Swap lines. It knows that by picking some 
countries, it risks sowing doubt about oth- 
ers. Turkey, for example, has long coveted a 
swap line. India also sought one, according 
to the Indian Express, a newspaper. The 
SWap-envy is telling. It shows that a Fed 
Swap line is not a source of stigma in the 
Way an IMF loan can be. (Indeed, the fund 
has tried to brand its new, condition-light 
loans for stronger countries as “swap-like’, 
in the hope of making them more popular.) 
Brazil, with its comfortable stock of re- 
serves, has not even used its swap line. It 
values it more for the insurance it provides 
and the signal it sends, says Alberto Ramos 
of Goldman Sachs, a bank. 

By the end of April ten central banks had 
drawn over $440bn between them. The 
biggest take-up was by the Bank of Japan. 
Its country’s banks need dollar funding for 
their heavy overseas lending. And Japan’s 
pension funds and life insurers also need 
to hedge their large holdings of dollar as- 
sets by, in effect, borrowing dollars, points 


out Brad Setser of the Council on Foreign >> 


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The Economist June 20th 2020 


>» Relations, a think-tank. 

Favourable dollar funding meant finan- 
cial institutions did not need to resort toa 
fire-sale of dollar assets, say Egemen Eren, 
Andreas Schrimpf and Vladyslav Sushko of 
the BIS in a recent paper. In the five coun- 
tries first given swap lines, the cost of bor- 
rowing dollars fell sharply. Indeed, some 
banks in these countries were able to bor- 
row more cheaply (via commercial paper or 
certificates of deposit) than their American 
peers, according to the authors. Moreover, 
banks in these countries sometimes lent 
their dollars to other banks elsewhere, 
helping to alleviate the dollar shortage 
globally. Perhaps, then, the Fed’s agonising 
over whom to favour with a swap line did 
not matter all that much. As long as it pro- 
vided enough dollars to central banks 
somewhere, their banks could funnel any 
surplus dollars elsewhere. 

One of the Fed’s innovations was to of- 
fer longer-term swaps lasting 84 days. The 
first of these matured on June uth, reduc- 
ing the amount of dollars outstanding by 
almost $92bn. If the foreign banks that had 
borrowed these dollars (through the Bank 
of England’s and the European Central 
Bank’s swap lines with the Fed) still needed 
them, they would have rolled them over. 
But they did not—suggesting that the 
swaps had eased much of the stress that 
motivated them. @ 


The euro area 


Better tailored 


Stimulus is less stingy than in past 
crises—but meaner than in America 


HOSE STRUGGLING to break bad habits 
Tshoutd take inspiration from the euro 
zone. During the global financial and 
sovereign-debt crises it did too little to 
shore up growth; at times monetary and 
fiscal policy were tightened precisely when 
they should have been loosened. By con- 
trast, its response to the covid-19 pandemic 
has been less flat-footed. Consider the 
events of the first three weeks of June 
alone. Germany's government, usually 
tight-fisted, announced a stimulus pack- 
age of at least €130bn ($146bn). The Euro- 
pean Central Bank (ECB) said it would buy 
another €60obn in bonds. And as The Econ- 
omist went to press, national leaders were 
due to discuss setting up an EU-wide “re- 
covery fund” of €750bn, an idea first floated 
in April. 

The question is whether policy can rem- 
edy a grave weakness: that countries facing 
the greatest economic damage are also 
those with the least fiscal space. Germany’s 


outbreak was relatively less severe, and its 
lockdowns less stringent. Its new pro- 
gramme takes its total fiscal stimulus this 
year to 9% of GDP, according to economists 
at UBS, a bank (see chart). That is bigger 
than America’s. But France, Italy and Spain, 
which have had worse outbreaks and strict- 
er lockdowns, and risk losing valuable tou- 
rism revenues over the summer, also have 
higher government-debDt ratios. Fiscal sup- 
port has been stingier there. 

The good news is that EU policymakers 
are trying to redress the imbalance. Thanks 
in part to Germany's newfound generosity, 
the recovery fund could direct cash to 
countries according to need rather than 
what they contribute. A proposal by the 
European Commission suggests that Italy 
could receive grants equivalent to about 5% 
of its GDP, and loans worth another 5%, 
says Jacob Nell of Morgan Stanley, a bank. 
Germany and the Netherlands might re- 
ceive funds worth only 1% of GDP. The bad 
news is that although many economists ex- 
pect an agreement to be struck, a few coun- 
tries—such as the Netherlands and Swe- 
den—are yet to sign up. Asa result the fund 
could well become stingier. Moreover, the 
cash will only begin to be doled out in 2021, 
and will be spread over a number of years. 

That means that the EcB must do the 
heavy lifting this year. All told, it is due to 
buy €1.6trn in public and private-sector 
debt in 2020, equivalent to 14% of last 
year’s GDP. Like the commission the bank 
has shifted away from its usual “one-size- 
fits-all” approach. Instead of buying assets 
in line with its “capital key” (ie, a country’s 
contribution to the bank’s capital, which is 
in turn proportional to its economic size), 
it seeks to contain the spread between the 
bond yields of riskier countries and those 
on German bunds. Around 22% of the pur- 
chases through its pandemic programme 
and its older quantitative-easing scheme 
in April and May were of Italian paper, 
whereas Italy’s share of the capital key is 
17%, Says Sven Jari Stehn of Goldman Sachs, 
another bank. That means the ECB could 
indirectly fund all of Italy’s deficit this year. 


a al 
Mismatched 
GDP, % change on a year Fiscal stimulust 
earlier, 2020 forecast* % of GDP, 2020 
(Gree eS 0 0 5 10 






United States 


Germany 
Euro area 
Spain 
Italy 


France 





*Assuming second major covid-19 outbreak avoided this year 
TAnnual change in cyclically adjusted primary balance 
Sources: OECD; UBS 


Finance & economics 


Despite all this, the euro area is proba- 
bly still short of stimulus in 2020. Though 
it seems likely to suffer a bigger economic 
hit than America, its overall fiscal support 
is smaller. The pace of ECB purchases is 
more sedate than that of America’s Federal 
Reserve. Few economists think existing 
stimulus will rouse inflation, which was 
stubbornly below the EcB’s target even be- 
fore covid-19. Still more bond-buying is 
therefore probably on the cards. The recov- 
ery fund could set a precedent, hopes Mr 
Nell, allowing for a common fiscal tool to 
be used in other times of need. Good hab- 
its, once formed, tend to stick. @ 


Poverty in China 
Clarifying the 
battle lines 


HONG KONG 
China is not as poor as one of its 
leaders implies 


INCE 2017 China’s government has de- 
S scribed fighting poverty as one of three 
“tough” or “critical” battles (alongside 
quelling pollution and financial risk). De- 
Spite the covid-19 pandemic, it still seems 
confident of victory this year. In March Xi 
Jinping, the president, pointed out that the 
number of rural poor fell to 5.51m in 2019. 
That is only 0.4% of China’s vast popula- 
tion. Regional overall poverty, he said, had 
been basically eradicated. 

The claim seemed wildly at odds with 
another statistic, cited last month by Li Ke- 
qiang, the prime minister. “There are still 
some 600m people [whose] monthly in- 
come is barely 1,000 yuan,’ he said at the 
close of the annual meeting of China’s par- 
liament. Since 1,000 yuan is worth only 
about $140, the figure seemed both surpris- 
ing and depressing. Many commentators 
concluded that China’s victory against pov- 
erty was hollow, achieved not by lifting 
people up but by watering the definition of 
poverty down. 

This scepticism, though, is dogged by 
two misunderstandings. The first is the 
conviction that China’s rural-poverty line 
must be ridiculously stingy, lower than the 
global standard of $1.90 a day. The second is 
the belief, inspired by Mr Li's imprecise re- 
marks, that 600m Chinese live on 1,000 
yuan a month or less. Neither claim is true. 

About a decade ago China drew its rural 
poverty line at 2,300 yuan a year, or 6.3 
yuan a day. The World Bank’s most com- 
monly used global poverty line is $1.90 a 
day. Since 6.3 yuan is worth only about 
$0.90 at today’s exchange rate, it seems 
natural to think that China's poverty line is 
much lower than the World Bank’s. 


63 


Natural, but wrong. A fair comparison >> 


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64 Finance & economics 





Above the line, or below it? 


> must first note that China and the World 
Bank drew their poverty lines with differ- 
ent years in mind. China's line is based on 
the prices prevailing in 2010; the World 
Bank’s, on prices in 2011. China updates its 
line every year to reflect the inflation faced 
by the rural poor. In 2011 the threshold was 
2,536 yuan, Or 6.95 yuan a day. 

That is still a meagre amount. But be- 
cause prices tend to be lower in rural China 
than in America, 6.95 yuan stretches fur- 
ther than the equivalent amount of dollars 
would in America. So the yuan should be 
converted into dollars not at the market ex- 
change rate, but at the purchasing-power- 
parity rate. That was 3.04 yuan per dollar in 
2011, according to Martin Ravallion of 
Georgetown University, who helped set the 
World Bank's line. Thus China’s rural-pov- 
erty line is equivalent to about $2.30 a day 
in 200 purchasing-power-parity dollars, 
comfortably above the $1.90 global line. In- 
deed, the bank’s poverty count for China is 
lower than the government's. 

What about the second misunderstand- 
ing? After the furore caused by Mr Li’s com- 
ments, China’s National Bureau of Statis- 
tics tried to sort out the confusion this 
week. It pointed out that the 610m people 
living in the bottom 40% of China’s house- 
holds had a monthly income per person of 
almost 1,000 yuan. In other words, if their 
combined income were divided equally be- 
tween them, they would each receive 
roughly 1,000 yuan (ie, 3,000 yuan for a 
typical household of three). That is the ba- 
sis for Mr Li's statement. But it is different 
from saying that all of these 610m live on 
1,000 yuan orless. Imagine a country of ten 
people, where the bottom four earn $1, $2, 
$3 and $4 a day, respectively. Their income 
per person is $2.50. But only two of them 
live on less than this amount. China’s lead- 
ers often quote official statistics that flatter 
the economy. But on this occasion, Mr Li's 
comments unflattered to deceive. 


The economics of reparations 


Forty acres anda 
mule 


The difficulties of working out how to 
compensate the descendants of slaves 


N A SURVEY last year 29% of Americans 
[supported the idea that the government 
Should make cash payments to black 
Americans who were descendants of 
slaves—twice the share that agreed in the 
early 2000s. As protests have rocked Amer- 
ica in recent weeks, the idea of reparations 
to atone for the atrocity of slavery, as well 
as to reduce the persistent gaps in income 
and wealth between people of different 
skin colours, has gained further promi- 
nence. Joe Biden, the presumptive Demo- 
cratic nominee for president, has said he 
wants to explore it. On June 11th California’s 
State lawmakers passed a bill that estab- 
lishes a task-force to study and propose 
recommendations for reparations. The 
chances of the federal government imple- 
menting such a policy seem remote. But 
how would sucha scheme work? 

As “From Here to Equality’, a new book 
written by William Darity, a scholar on rep- 
arations at Duke University, and A. Kirsten 
Mullen, shows, the practicalities tend to 
take a back seat to philosophical argu- 
ments over whether reparations are need- 
ed in the first place. Genealogists would 
face the tricky task of determining who 
would be eligible for them. Economists, 
meanwhile, would have to consider two 
questions: how much to pay, and how best 
to spend the money? 

History offers a guide to the first ques- 
tion. Past claims for reparations have relied 
on the notion that people were wrongly de- 
prived of income or property, or were un- 
fairly forced to incur costs. For instance, Is- 


._, : 


The burden of history | 


The Economist June 20th 2020 


rael calculated its claims for reparations 
from Germany after the second world war 
in part by estimating the expenditure it in- 
curred in order to resettle Jewish victims of 
Nazi persecution. An official report into 
America’s forced relocation and incarcera- 
tion of Japanese-Americans during the war 
reached the conclusion that they had been 
unfairly deprived of income and property 
worth $3bn (in today’s prices). In 1988 the 
American government issued a formal 
apology and eventually compensated 
80,000 Victims. 

Many scholars have tried to work out 
what would count as sufficient compensa- 
tion for the descendants of slaves, but there 
is little agreement between them. One ap- 
proach is to focus on compensation prom- 
ised by the Union Army to freed slaves in 
1865— the value of 40 acres of land and a 
mule—which was never realised. The 
amount of cropland required to meet that 
commitment today has a value of about 
$160bn (0.7% of American GDP in 2019). 

Other approaches lead to much bigger 
sums. One calculates the difference be- 
tween what slaves were given by way of 
maintenance, and what free workers were 
paid. An estimate puts that at roughly 
$4trn in today’s money (19% of GDP), once 
you account for the financial returns that 
could have been made if the money had 
been paid on time. But some argue that 
Slaves held down the wages of free workers, 
meaning that the true value of slaves’ lost 
wages is higher. Mr Darity and Ms Mullen 
say that the difference in mean net wealth 
between white and black households 
($795,000 in 2016) is the “most robust indi- 
cator of the cumulative economic effects of 
white supremacy’. That points to repara- 
tions of nearly $8trn, or 37% of GDP. (The 
authors suggest that this should be partly 
financed by printing money, something 
that will make most wonks queasy.) 

Another area of disagreement concerns 


the form that reparations should take. Mr >> 


= al 





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The Economist June 20th 2020 


» Darity and Ms Mullen argue that for “both 
symbolic and substantive reasons, an ef- 
fective programme of restitution must in- 
clude direct payments”. But cash transfers 
may do less to reduce inequality than their 
Supporters hope. Research on_ inheri- 
tances, for instance, suggests that most 
heirs consume their windfall within a few 
years (purchases of cars are especially pop- 
ular). A sizeable part of the income gap be- 
tween black and white Americans reflects 
differences in education levels; big one-off 
payments alone cannot alter that. And re- 
search by Mr Darity and Dania Francis of 


the University of Massachusetts Boston 
finds that reparation payments could in- 
crease non-black incomes relative to black 
ones, if the spending thus facilitated 
flowed largely to non-black-owned firms. 
“Our paper points to the need to improve 
the infrastructure of black-owned busi- 
nesses and banking so that dollars from 
reparations can flow into black communi- 
ties,” says Ms Francis. 

To this end, some economists argue 
that reparations should fund training and 
education programmes, or subsidise busi- 
ness lending. Others point to “baby bonds’, 


The detail on retail 


Look to China—and to history—to understand the new wave of small investors 


HERE IS NOTHING new on Wall Street. 

Speculation is as old as the hills. So 
says the protagonist of “Reminiscences 
of aStock Operator”, published 1n 1923. 
Quite so—but you can count on some 
new variations. Take the case of Nikola 
Corporation, which makes trucks pow- 
ered by green energy. On June 8th its 
stock price doubled. It was then worth 
more than Ford. Yet it has sold no vehi- 
cles. “Sympathetic magic’, explainsa 
seasoned investor. Nikola is named after 
Nikola Tesla; as is Tesla, the leading 
electric-vehicles firm. That is enough of 
a buy signal. 

Enough, that is, foranew army of 
retail speculators, which is blamed fora 
lot of strange moves in stock prices. 
Since March, no-cost brokerages that 
cater to small investors report a dramatic 
Surge in new accounts and trading vol- 
umes. A noisy gaggle of social-media and 
chat-room pundits has emerged. David 
Portnoy, a sports-betting media-mogul 
reinvented as “Davey Day Trader” is 
perhaps the most prominent. The retail 
army has marched into America’s ever- 
green tech stocks. Less predictably they 
are also keen buyers of grounded air- 
lines, of beached cruise liners and, 
Strangest of all, of Hertz, a car-rental firm 
that has filed for bankruptcy. 

Some of this recalls the era of Jesse 
Livermore, whose exploits are fiction- 
alised in “Reminiscences”, with its buck- 
et shops, tipsters and crazy buying of 
A.O.T. (Any Old Thing). There are strong 
parallels with the day traders and chat- 
room herds of America’s dotcom mania 
in the late 1990s. But you don't have to go 
back even that far. A lot of the archetypes 
are found more recently in China. 

There are striking resemblances 
between America in 2020 and China’s 
stockmarket fever of 2015. The economy 





was ina tough spot. The real returns on 
bank deposits were negative. There were 
plenty of liquid funds to lubricate trading. 
Brokers and shadow banks were lending 
freely to retail speculators. The retail wave 
in America differs in the sources of eco- 
nomic trouble and liquidity. Much of the 
money going into new trading accounts is 
from government transfers to workers 
idled by covid-19. With free time, free 
money and free trading—plus no sports— 
why not take a punt on the markets? 

Rumour, connections (real or imag- 
ined) and tips have always played a big role 
in determining what stocks retail specu- 
lators buy. In Livermore's day, every buck- 
et-shop punter kept his ear open fora tip to 
get aboard Burlington or Northern Pacific. 
What has changed is the speed at which 
tips spread and so how synchronised retail 
buying has become. The result is a rapid 
succession of fads: first tech darlings; then 
bombed-out stocks; then something else. 
This rotation of investment themes isa 
recurring pattern in China’s market, says 
Adam Levinson of Graticule, a Singapore- 
based asset-manager. 


Finance & economics 


which would be targeted at poor children 
and help them pay for university or to start 
up a business. Naomi Zewde of the City 
University of New York finds that baby 
bonds could substantially reduce racial 
wealth gaps among young people. 

Reparation payments could be spent in 
other ways. Money paid out to Japanese ex- 
internees has been used to fund academic 
chairs and historical archives. Reparations 
from Germany pay for food and medicine 
for Holocaust survivors. But before Ameri- 
ca can widen support for reparations, it 
will have to debate what works. @ 











As noisy as Mr Portnoy and his ilk are, 
they have been almost drowned out by 
the tut-tutting of jowly investors. The 
pros are shocked—shocked, they tell 
you—to find that there is gambling going 
on. Much of their ire is directed at the 
million-plus users of r/wallstreetbets, a 
Reddit forum where frat-boy argot is 
mixed with trading jargon. Its devotees 
are not the type to buy a stock based ona 
model of discounted cash flows. Instead 
they favour buying call options. A certain 
kind of call option—deeply out-of-the- 
money and close to expiry—is much like 
buying a lottery ticket or making a long- 
odds sports bet. They can pay off spectac- 
ularly fora relatively small outlay if the 
stock price suddenly surges. And, like 
bucket-shop bets, they are self-expiring. 

Put aside the harrumphing fora 
moment. There is something to cheer in 
all this. Academics have puzzled over 
why more people do not participate in 
the stockmarket. The literature suggests 
peers have an influence. A paper in 2002 
by Esther Duflo and Emmanuel Saez, for 
instance, finds that the pension choices 
of university librarians were swayed by 
their colleagues. That does not mean 
there is nothing to worry about. Outside 
of their pension plans, even experienced 
retail investors have a habit of over- 
trading—to the detriment of returns. The 
tendency to churn portfolios is higher in 
men than women. It is linked to over- 
confidence and thrill-seeking. 

The Stock Operator knew the type. 
There is a higher grade of speculator, he 
said, who knows enough to avoid the 
trading mistakes beginners make. This 
kind loves to buy on stock declines and 
to quote wise-sounding aphorisms. The 
bucket shops and brokerages love him. 
For itis this sort of speculator, the “semi- 
sucker’, that keeps them in business. 


65 


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66 Finance & economics 


Global trade 


Ninety percent of everything 


As the virus rages on shore, merchant seamen are stranded on board 


(477'M NOT COMFORTABLE in my chair with 
I such acrew,’ says the captain ofa cargo 
vessel in the South Atlantic en route from 
Bermuda to Singapore. He is eight months 
into a four-month contract, and almost 
everyone on board has also already worked 
at least double his contracted time. He 
hopes Singapore will accept that sailors 
who have seen almost no one but each oth- 
er for months pose no infection risk and 
permit a crew change. If not, some may re- 
fuse to keep working. On June 16th an in- 
dustry-wide agreement to allow emergen- 
cy contract extensions expired, but that is 
no guarantee that ports will open up. “Be- 
lieve me,’ he says, “the situation is critical.” 
When Rose George, a journalist, wrote 
about the shipping industry in 2013, she 
called her book “Ninety Percent of Every- 
thing” to convey its importance to global 
trade. But during the covid-19 crisis almost 
none of the mariners who keep the world 
fed, warmed and entertained have been al- 
lowed on shore. At any moment1.2m are in 
cargo vessels on the high seas. (Half as 
many again work on cruise ships or vessels 
transporting goods within a single coun- 
try’s territory.) At least 250,000 have fin- 
ished their contracts and have no idea 
when they will be relieved. Similar num- 
bers are stuck at home with no idea when 
they will next get work. Both totals are ris- 
ing by tens of thousands each week. 
In normal times, crewing the world’s 
merchant fleet is a logistical miracle. Ship- 





No man’s landing 


Management firms handle the rosters, 
signing crew on, flying them from their 
home countries to a convenient port, and 
getting them off their ships again and ona 
plane home. Many mariners are from de- 
veloping countries, in particular India, In- 
donesia and the Philippines. They often 
start and end their contracts in hubs such 
as Dubai, Hong Kong and Singapore. Con- 
tracts are typically of three to nine months, 
with one month’s variation in either direc- 
tion to make planning easier. 

The virus has thrown an almighty span- 
ner in the works. Countries that classified 
lorry drivers, pilots and cabin crew as es- 
sential workers overlooked merchant sea- 
men, even though their work underpins 
the global economy. Some will accept their 
citizens, but ships may not be calling ata 
suitable port, and management companies 
may not be able to line up relief. With few 
scheduled flights, the sailors who manage 
to disembark may not be able to get home. 

At first they were proud to be able to 
help in the global emergency, says Lars 
Robert Pedersen of BIMCO, which repre- 
sents the owners of about 60% of the 
world’s merchant fleet. They are used to 
hard work and long contracts. But when of- 
ficial neglect continued, sailors’ morale be- 
came a problem. “They are fed every day, 
and they are getting paid, but that’s not the 
point,” he says. “They are effectively im- 
prisoned on board their ships.” 

Owners and managers are trying to 


The Economist June 20th 2020 


make confinement more bearable with free 
internet and wage top-ups, says Andreas 
Hadjipetrou, the managing director of Co- 
lumbia Shipmanagement. “One captain 
asked for gym equipment and karaoke,” he 
says. ‘Thecrewcreated aband and sentusa 
video clip.” More importantly, they are do- 
ing everything they can to facilitate crew 
changes—which take not just planning, 
but a hefty dose of luck. 

Among the merchant seamen relieved 
during the lockdown is Hrisheet Barve, a 
ship’s captain and an Indian from the state 
of Goa. By the end of May he and 16 crew 
members, also Indian, were months over 
contract. Since they were sailing along In- 
dia’s coast, he proposed to the ship’s man- 
agement company, Anglo-Eastern, that it 
divert to the port of Cochin in the state of 
Kerala for a crew change. The company 
agreed, despite the cost and delay. Even 
though the men were all nationals, disem- 
barking required lengthy negotiations 
with the shipping ministry and port and 
State officials. They had seen no one else 
for months, but still had to spend two 
weeks in quarantine. 

By the end, says Captain Barve, he was 
very worried about his men’s mental state. 
“When you're all in the same boat—pun 
not intended—you can pull each other 
down.” And tired, miserable sailors are un- 
safe, he adds. “It just takes one captain to 
make a mistake and run a tanker aground 
and cause an oil spill. They will say it wasa 
navigational error but the real culprit will 
be that he was working way longer than he 
should have been.” 

The International Maritime Organisa- 
tion, the arm of the UN that deals with ship- 
ping, has drawn up a protocol for crew 
changes during the pandemic. It requires 
governments to classify merchant seamen 
as essential workers, thus enabling them to 
travel and cross borders. Ports and airports 
need facilities for testing and quarantine, 
and safe connections. “We have the stan- 
dard operating procedure ready to act on,’ 
Says Bjorn Hojgaard of Anglo-Eastern. “We 
just need help from regulators.” 

The industry hopes that governments 
will be prodded into action by the sudden 
expiry of so many seamen’s contracts. The 
International Transport Workers’ Federa- 
tion (ITF) says it will support any seamen 
who refuse to work. If that leaves too few 
people to operate a ship safely, its insur- 
ance policy could lapse, and full liability 
fall on the captain and owner, who might 
then decide it was too risky to keep going. 
The trade that has flowed so smoothly 
throughout the pandemic might finally 
gum up. “Everyone is happy to reap the 
benefits of global trade,’ says Stephen Cot- 
ton, the ITF’s general secretary. “But no one 
seems willing to step up when it comes to 
safeguarding those who deliver the things 
they need every day.’ & 








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The Economist June 20th 2020 


Free exchange | Changing room 


New research casts light on the pandemic’s effects on resource allocation 





S COVID-19 SPREAD around the world, many governments pre- 
A scribed the economic equivalent of a medically induced coma. 
Halting the transmission of the disease meant shutting down eco- 
nomicactivity. But to restore economies to health quickly, connec- 
tions between workers and firms needed to be maintained, so that 
activity could pick up from where it had left off. It seems increas- 
ingly clear, though, that not everything will return to normal once 
covid-19 is eventually beaten. As economies adjust, there is likely 
to be asubstantial reallocation of people and resources. 

Flexible economies that can nimbly reallocate resources ought 
to have an easier time weathering shocks and unlocking the pro- 
ductivity-boosting benefits of new technologies and business 
models. As the pandemic spread it induced a sudden, violent 
Shock across the economy. While millions of workers and ma- 
chines were idled, demand for some skills and products soared. 
Much of this is almost certain to prove temporary. The production 
of ventilators rose sharply in the first half of 2020, but might even- 
tually fall back to, or below, pre-pandemic levels, as hospitals find 
they have more than they need in normal times. Other shifts are 
likely to persist. In March and April Amazon hired 175,000 workers 
to manage a Surge in online shopping. Firms offering products to 
facilitate telemedicine and online learning also took on scores of 
new employees. Many of these will stay, just as many pandemic- 
linked lay-offs will become permanent. 

In a paper published in May Jose Maria Barrero of the Instituto 
Tecnologico AutOonomo de Mexico, Nicholas Bloom of Stanford 
University and Steven Davis of the University of Chicago analysed 
a monthly survey of business uncertainty, which assesses firms’ 
expectations for sales, hiring and investment over the next year. 
The authors found a surge in expected job reallocation from Janu- 
ary to April, and conclude that 42% of lay-offs linked to the pan- 
demic are likely to prove permanent. Similarly, recent analysis 
produced by Adam Ozimek, the chief economist at Upwork, anon- 
line labour exchange, suggests that the shift to remote work 
prompted by covid-19 will leave a lasting impression. Of the hiring 
managers surveyed by Upwork, 62% say their workforce will be 
more remote than before the pandemic. 

Capital markets, too, are signalling that lasting change isin the 


works. Messrs Barrero, Bloom and Davis analyse the dispersion of 
equity returns, surges in which are often treated as an indicator of 
a reallocation shock. The authors note that dispersion soared in 
March to levels last seen during the dotcom bust and the global fi- 
nancial crisis. In a recent paper Marco Pagano of the University of 
Naples Federico II and Christian Wagner and Josef Zechner of the 
Vienna University of Economics and Business compare the stock 
performance of businesses that are “pandemic-resilient” (eg, mak- 
ers of computer-related products and pizza-delivery firms) with 
those of highly vulnerable ones (eg, mining firms). The former 
group outperformed the latter by 10% in February-March. Adjust- 
ing for risk and other factors only reinforces the point. The cumu- 
lative risk-adjusted returns of a high-resilience portfolio were 
roughly 25% higher than a low-resilience one in the same period. 
Differential movements in share prices provide a gauge of market 
sentiment about firms’ prospects. As a higher stock price makes it 
easier for companies to raise funds in order to expand, they also 
represent a mechanism by which capital flows from endangered 
firms to flourishing ones. 

The authors extend their analysis back in time and come to the 
rather striking conclusion that the outperformance of less vulner- 
able firms predates the pandemic. They detect that returns began 
steadily diverging in 2014, before widening further in the second 
half of 2019, and then exploding early this year. This does notimply 
that markets foresaw the pandemic. It is owed, in part, toa boomin 
the price of technology stocks. Yet it helps illustrate why much of 
the reallocation now under way is very likely to stick—because it 
represents a continuation of trends that were long blessed by capi- 
tal markets. Investors seem to have become steadily more cogni- 
sant of the risk of disasters. Options prices imply that over the next 
two years investors require a far higher expected return in order to 
accept exposure to vulnerable firms than to more disaster-resil- 
ient ones. The premium was rising before covid-19 but it has since 
rocketed, as the shock of the pandemic reinforced the tendency. In 
a Similar way, the reallocation of resources now taking place in re- 
tail, health and education may in fact represent an acceleration of 
trends already established before the outbreak of the coronavirus. 


There’s no turning back 

If in fact covid-19 is engineering structural economic change, this 
complicates the already difficult decision of whether or not to 
keep struggling companies and jobs afloat. Compared with the rest 
of the rich world, America appears to have done less to freeze its 
economy in place. The number of corporate filings for bankruptcy 
in March and April was 22% above that in the same period in 2019; 
by contrast, bankruptcy filings in Germany were no higher. Unlike 
other rich countries, America has prioritised temporarily increas- 
ing the generosity of unemployment benefits (until the end of 
July) over using government support to help prevent job losses in 
the first place. Unemployment has consequently risen much more 
than it has in Europe. 

The choice ahead is tricky. Messrs Barrero, Bloom and Davis 
warn that generous support could prove counterproductive, since 
it might discourage workers from seeking new jobs in expanding 
sectors. But withdraw stimulus too soon and the economy could 
remain mired in a slump, retarding the growth of frontier indus- 
tries. Keep it going for just long enough, though, and the decision 
to allow the pandemic to destroy some jobs and companies, the 
better to let more robust and productive ones rise in their place, 
might one day be seen as remarkably fortuitous. 


Finance & economics 67 


68 


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Pole position 


The voyage of the icebreaker Polarstern is revealing the Arctic’s secrets 


HERE IS “LOCKDOWN . And then there is 

lockdown. Those who have spent the 
past weeks allowed out only to exercise and 
visit the shops might spare a thought for 
the passengers and crew of Polarstern (Pole 
Star), pictured above. Polarstern is an ice- 
breaker belonging to the Alfred Wegener 
Institute for Polar and Marine Research, in 
Germany, and her ship’s company are ina 
different class of lockdown entirely. Their 
vessel is afloat in the pack ice of the Arctic 
Ocean, and communications are so mini- 
mal as to preclude phone calls, let alone 
Zoom. Only pictureless messages and 
emails are possible. 

Polarstern is the location of MOSAIC, the 
Multidisciplinary drifting Observatory for 
the Study of Arctic Climate. She sailed from 
Tromso, in Norway, on September 2oth 
2019 and travelled toa point at latitude 85°N 
(see map on next page). Here, mimicking 
the first high-Arctic voyage, made 1n1893 by 
Fridtjof Nansen, a Norwegian explorer, her 
captain fixed her into an ice floe that car- 
ried her along at about 7km/h, courtesy of 


an ocean current called the transpolar drift 
stream. Her closest approach to the pole it- 
Self, 156km, was on February 24th. 

Things have not, however, gone accord- 
ing to plan. The idea was for a revolving 
cast of 300 scientists each to spend two 
months on board. This would have permit- 
ted specialists in the study of different sea- 
sons and conditions—winter or summer 
ice, say—to be there at the appropriate mo- 
ment, and would also have had the benefit 
of protecting everyone from cabin fever. 


Unplugging the freezer 

A planned rotation in April had, though, to 
be cancelled. Norway, the new shipmates’ 
intended departure point, had closed its 
borders in response to covid-19. That left 
the original company with no liberation 
date. Eventually, two transfer ships with 
the newbies on board sailed from Bremer- 
haven, in Germany. And on May 17th Polar- 
stern broke free from her icy prison and 
headed south to meet them off the coast of 
Svalbard. On June 8th she began the return 


trip, and arrived back at her original piece 
of ice (which had moved) on June 17th, to 
resume drifting with it until she breaks 
free in September, in the Fram Strait be- 
tween Greenland and Svalbard. 

The coronavirus has not changed MOSA- 
ic’s objectives, however. These are to study 
the structure of Arctic ice and how this 
changes with the seasons, and to look at 
the air above that ice, the water below and 
the creatures living in that water—and, in- 
deed, in the ice itself. All of these are inter- 
linked. They also link the place with the 
wider world, for the Arctic is both a record- 
erand a driver of climate change. 

It is a recorder because the visible dif- 
ference between ice and water, and the ob- 
vious relationship between global tem- 
peratures and the amount of ice around, 
mean together that the ice’s waxing and 
waning shows in an easily graspable way 
how things are changing. And changing 
they are, for the extent of the Arctic sea ice 
in summer has declined by 30% in the past 
30 years, and that loss is accelerating (see 
chart on final page). 

The Arctic is also a driver of climate 
change, though, because the whiteness of 
ice means it reflects sunlight back into 
Space, thus cooling Earth, whereas the 
darkness of open water means it absorbs 
that light. The less of the former that is hap- 
pening, and the more of the latter, the fast- 
er global temperatures will rise. 

Start, then, with the ice. At the moment 


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The Economist June 20th 2020 


> this is monitored mainly by satellite. Mea- 
Suring the extent of the Arctic’s ice from 
Space is easy. Measuring its thickness is 
trickier. From orbit, this is done by a mix- 
ture of radar and laser beam. Icesat 2, an 
American craft, provides laser-altimeter 
data that record the height above sea level 
of the top of the snow that overlies the ice. 
Cryosat 2, a European one, uses radar to 
penetrate the snow and measure the height 
of the top of the ice itself. The thickness of 
the ice in a particular place can then be cal- 
culated by applying Archimedes’ principle 
of floating bodies to the mixture of ice and 
snow, and subtracting the thickness of the 
snow. However, Julienne Stroeve of Uni- 
versity College London, now safely re- 
turned from her leg of the mission, be- 
lieves that the data collected by these two 
Satellites may be inaccurate, leading to an 
overestimation of the ice’s thickness. 

When all is working perfectly, the re- 
turn signal for Cryosat 2 comes exactly 
from the boundary between the ice and any 
overlying snow. Dr Stroeve thinks, though, 
that this is not always what happens. Vari- 
ables such as layering within the snow, 
along with its temperature and salinity, 
might affect the returning radar signal by 
changing the snow’s structure and density. 
This could cause the signal to be reflected 
from inside the snow layer, rather than 
from the boundary where it meets the ice. If 
that were happening, it would create the il- 
lusion that the ice beneath the snow is 
thicker than is actually the case. 

To investigate this possibility Dr 
Stroeve tooka purpose-built radar on board 
Polarstern. Each week, she and a colleague 
mounted this 170kg instrument on a sled 
and dragged it to a new site, to sample dif- 
ferent snow conditions. As they towed it, 
they sent radar pulses on the frequency 
bands used by the satellites downwards 
into the snow and measured the amount of 
backscatter. The deflection of the signals in 
this backscatter gives a picture of how par- 
ticular snow conditions might be changing 
the way the satellite’s radar is returned. 

Dr Stroeve’s radar died on January 31st— 
one of many of the expedition’s machines 
that fell victim to the Arctic winter. But by 
the time that had happened she had man- 
aged to gather a fairly good set of data. Her 
conclusion is that the reflection does in- 
deed sometimes come from the interface 
between snow and ice, as it is supposed to. 
But not always. The discrepancy is impor- 
tant. Her measurements already show that 
the ice is “definitely thinner than the satel- 
lites suggested”. She has yet to analyse the 
data fully, but preliminary investigation 
indicates that both snow depth and tem- 
perature influence backscatter. It therefore 
looks likely that the amount of Arctic sea 
ice around has been overestimated. That 
brings closer the moment when, if tem- 
peratures continue to rise, the ice will van- 


ish altogether in the summer. 

The thickness of the pack ice is not the 
only thing that matters, though. Its topog- 
raphy is also important. This is the prov- 
ince of Jennifer Hutchings of Oregon State 
University. She is using Gps buoys to track 
the motion of the ice around the ship. 
Though sea ice is solid, it is not rigid. It 
forms but a thin skin on the ocean—vatry- 
ing in depth from around 30cm in summer 
toacouple of metres in winter—so is readi- 
ly moved by wind and current. 

As the ice moves it stretches and cracks 
in some places. Large cracks formed in this 
way are Called leads, because they are wide 
enough to “lead” a ship. In other places, by 
contrast, movement makes the ice thicker. 
As individual panes of ice butt up against 
each other, they create ridges that can be 
metres high. Dr Hutchings has notyet hada 
chance to process her data. But even from 
the ship’s deck she has been able to watch 
leads opening and ridges forming around 
the vessel. Her eyes and ears, as well as her 
instruments, tell her that this winter the 
ice has been particularly mobile—and has 
thus become particularly rough, witha sur- 
prising number of ridges. 

These ridges may affect the rate at 
which the ice melts—but to complicate 
matters, this could happen in two oppos- 
ing ways. Ridges make ice thicker, and 
thicker ice melts more slowly. On the other 
hand, a ridge projects down into the sea as 
well as up into the air (Archimedes, again), 
So it may stir up water from below the sur- 
face. Deep water is warmer than the surface 


Science & technology 69 


layer, so this stirring would serve to in- 
crease melt rates. Moreover, to add to the 
confusion, ridges are prone to having 
pieces of ice fall off them into the sea, to 
form small blocks known as brash. This 
brash, having more surface area per unit 
volume than unbroken ice, melts faster. 

Dr Hutchings’s main _ observation, 
though, is a change in the ice’s structure. 
Historically, this far north, where ice is al- 
ways present in some form, winter is the 
time when it builds up as new layers are 
adding to existing floes, thickening them. 
In summer the ice then melts back a little. 
But acore of the stuff remains from year to 
year and, over successive winters, more 
layers are added. That forges what is 
known as multi-year perennial ice. 

Dr Hutchings and her colleagues have, 
however, found something rather different 
is now going on. Instead of being com- 
posed of ice accumulated over many years, 
much of the perennial ice pack is no longer 
truly perennial—it is “juvenile”, having 
built up over only the past two years. 

To Dr Hutchings, this is further evi- 
dence confirming what satellite images of 
the ebbing and flowing of the pack ice sug- 
gest—that the end of year-round ice cover 
at the North Pole may be near, with a sum- 
mer melt-back so substantial that the pole 
itself sees clear, blue water. 

Jeff Bowman of the Scripps Institution 
of Oceanography, in San Diego, is also in- 
terested in the behaviour of the ice. In his 
case, that interest is directed towards its ef- 


fects on Arctic life. The main question he >> 








(———s 
Alaska 
The YOyase of (to United States) 
Polarstern 
Arctic sea-ice extent 
October 2019 
On October 9th 
2019 Polarstern 
joined an ice floe, 
switching from 
Nearest North ab) 7 her own 2 ower to 
Tepes ole Dec drifting alon 
to pole Jan 2020 ete He es 8 
Feb 23rd 
J | } f 
Adrift N01 RUSSIA 
Ma 
On May 17th 2020 ————¥_*” 
Polarstern left the Jun 
ice floe to resupply 
andchangecrew =: [4 
near Svalbard. Strait ‘ag t 
She has now Route of 
returned Svalbard Polarstern 
Greenland Jun 4th-8th 2020 
(to Denmark) 
Tromso # 
Sep 20th 2019 
NORWAY Marked dates of travel are 
Sources: MOSAIC Expedition; ICELAND the first of each month 


US National Snow and Ice Data Centre 


unless otherwise noted 


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70 Science & technology 


Defrost setting 
Arctic sea-ice extent, September, km2, m 


[SUISPP sissy 316, 95 2000 CSO Sls aiG 


Source: US National Snow and Ice Data Centre 


>» has been asking is whether the Arctic eco- 
system as a whole is a net producer or ab- 
sorber of carbon dioxide. The answer to 
this question has implications for the 
amount that the Arctic contributes to glo- 
bal warming. It depends on how much pho- 
tosynthesis is taking place in the region. 
And that, in turn, depends on the extent 
and topography of the ice cover. 

The Arctic Ocean has few multicellular 
plants. But it does have single-celled algae 
and photosynthesising bacteria. These live 
both in the water and in the ice itself. And, 
though tiny, they are abundant. It is they 
that Dr Bowman, who is a marine microbi- 
ologist, is studying, to discover how they 
affect the Arctic’s carbon balance. 

To measure the activity of these micro- 
organisms he has been analysing the 
amount of oxygen in the water. This is an 
indicator of how much photosynthesis is 
taking place. In doing so, he has discovered 
that the physical condition of the ice—par- 
ticularly the ridges being studied by Dr 
Hutchings—has an important effect on 
these creatures and their productivity. 

Oceans, the Arctic included, fall natu- 
rally into layers, with the stillest water at 
the bottom, where there is also little light. 
Ascend the water column and both motion 
and light increase. Near the top is what is 
known as the surface mixed layer, which 
turns over continuously in response to the 
wind. Sea ice generally reduces this wind- 
induced mixing. But ice ridges act like tiny 
Sails, catching the wind, moving in re- 
sponse and thus stirring the water beneath. 
The consequence, Dr Bowman has found, 
is asurprisingly deep mixed layer. 

That is bad news for photosynthesising 
planktonic microbes. The already low level 
of light below the ice means they can grow 
only when they are close to the surface. If 
they get “mixed down” away from the light 
they cannot photosynthesise. 

This is not, however, a problem for 
those organisms actually embedded in the 
ice. For them, thinner ice means they get 
more light, rather than less. That raises 
their productivity. The result, as observed 





by Dr Bowman, was an unusually early 
Spring-ice algal bloom this year. 

It remains to be seen what the effects of 
the early bloom are. But shifts in the timing 
of events of this sort can have conse- 
quences. For example, if the algae bloom 
early, the tiny animals that eat them may 
hatch too late to catch their main food 
source. Fewer of these zooplankton means, 
in turn, less to eat for things further up the 
food chain—like fish, seals and polar bears. 

But what is true of winter is not neces- 
sarily true of summer. The return of the 
Sun means the winter’s subtleties are now 
being replaced by a stronger, more obvious 
consequence of the reduced Sea ice. This is 
that more light can blast through the water 
into the ecosystem. That, too, will affect 
the timing and intensity of phytoplankton 
and ice-algal blooms. 

The effects on the carbon balance of the 
early algal bloom in the spring will play out 
in the coming months. The uneaten algae 
may act as acarbon sink, mopping up car- 
bon dioxide. Alternatively, they may in- 
crease levels of carbon dioxide if their mis- 
timing serves to put out of kilter an 
ecosystem that would otherwise have ab- 
sorbed it. The new set of researchers on 
MOSAIC will follow this up. 

The changes in the ice that Dr Hutch- 
ings has been observing also seem to influ- 
ence the atmosphere, according to one of 
the other researchers on board Polarstern— 
Lauriane Quéléver of the University of Hel- 
sinki. Ms Quéléver is interested in the 
chemical composition of Arctic air, and in 
particular how certain scarce molecules in 
it act as precursors for the formation of 
clouds. This, she has discovered, seems to 
be controlled by the behaviour of the ice. 

On most parts of Earth clouds form as 
droplets of water condense around “seeds” 


We were here first! 


The Economist June 20th 2020 


of dust or organic molecules. In the Arctic 
there is little dust. Biological activity, too, 
is in short supply compared with else- 
where—and is, moreover, conducted 
mainly below the barrier of the sea ice. It 
might therefore be expected that there 
would be few seeds present for clouds to 
form around. And yet, clouds are present. 


Clouds on the horizon 

Ms Quéléver’s starting point for investigat- 
ing this matter was previous research car- 
ried out on islands at lower latitudes in the 
Arctic—specifically, Greenland and Sval- 
bard. Cloud seeds there tended to be com- 
pounds containing sulphur, nitrogen, 
chlorine, bromine or iodine. Using a score 
of instruments held in a container at the 
ship’s bow, she looked for these molecules. 
And she found them. 

That was not a complete surprise. What 
did surprise her, though, were the quanti- 
ties she found them in. She expected their 
concentrations in winter, the least biologi- 
cally active time of year, to be low to non- 
existent. In fact, they were similar to those 
found in Greenland. 

The only plausible source of these mol- 
ecules is the micro-organisms Dr Bowman 
is studying. And, as if to support that idea, 
she also saw that spikes in the concentra- 
tions of molecules of interest correlated 
with “ice events” around the ship, such as 
the opening of big leads which brought the 
air into contact with the seawater below. 

The link between the sea ice cracking 
and the release of potential cloud seeds 
Suggests that more cracks in the ice sheet 
could lead to more clouds in the Arctic. 
What overall effect that might have on the 
climate is unclear. Summer clouds would 
reflect sunlight back into space, cooling 
the planet. Those formed in winter, when 
the sun is below the horizon, would serve 
as insulation, warming it. AS with the way 
Dr Hutching’s ridges affect the melting of 
ice, two opposite outcomes are possi- 
ble—or perhaps the net effect will be that 
they cancel each other out. 

As this example shows, properly disen- 
tangling the interactions between Arctic 
ice, atmosphere and ocean life will require 
data collected across a full year—for the 
contrast between winter and summer at 
the poles is greater than anywhere else on 
the planet. Polarstern’s unexpected detour 
has come at the cost of some of these data, 
but in partial compensation the expedition 
left several autonomous machines on the 
ice, to continue harvesting as much infor- 
mation as possible during the ship’s ab- 
sence. With luck, then, the expedition has 
been saved to finish what will be the most 
comprehensive study so far made of the 
Arctic and its influence on the climate. If 
that happens, the researchers on board will 
have had the most productive lockdown 
imaginable—with no Zoom involved. @ 


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| a > ; >, h) , : 
+ JS. Ea NEN, . 


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g¢ toner “es pag 


Too many setbacks 


MADRID 





Why has Spain’s modern history been so tumultuous? 





















































A People Betrayed. By Paul Preston. 
Liveright; 768 pages; $35. William Collins; £30 


N 2018 A court in Madrid sentenced sever- 
La former officials of the ruling conserva- 
tive People’s Party (PP) to long prison terms 
for taking kickbacks on public contracts. It 
cast doubt on the credibility of evidence 
given by Mariano Rajoy, the prime minis- 
ter, who had appeared as a witness. Within 
a fortnight Mr Rajoy was out, his govern- 
ment the first to be ousted by acensure mo- 
tion since Spain returned to democracy 
and constitutional monarchy in the late 
1970S, after the long dictatorship of Fran- 
cisco Franco. Pedro Sanchez, the Socialist 
leader, breezed into power pledging to re- 
store the dignity of Spanish politics. 

Two years and two general elections lat- 
er, he heads a weak minority coalition with 
Podemos, a far-left party. Instead of digni- 
ty, there is crispacion, Spain’s word for no- 


compromise adversarial politics. Even be- 
fore the pandemic receded, the vitriol was 
back. The PP and Vox, a newish party of the 
hard right, accuse Mr Sanchez of misman- 
aging the disease (though the PP regional 
government in Madrid did no better). Pode- 
mos, preposterously, accuses the opposi- 
tion of seeking a coup. Meanwhile, Catalan 
separatism smoulders; some of its leaders 
are in jail after their illegal declaration of 
independence in 2017. Juan Carlos, the king 
who helped nurse democracy to life, abdi- 
cated in 2014. He is now being investigated 
over a contract in Saudi Arabia. 

No wonder many moderate Spaniards 
fear that a golden age of democratic pro- 
gress has come to an end, and that the 
country is reverting to older, more destruc- 
tive habits. So the latest book by Paul Pres- 
ton, a British historian of modern Spain, is 
timely. A political history of the past 150 
years, “A People Betrayed” has a thesis: that 
the country has been held back by corrup- 


72 Goths v Romans 


73 The news as art 











> Home Entertainment 
74 Rewatching “The Prisoner” 
74 Climbing “The Magic Mountain” 


tion and political incompetence, which 
have in turn led to breakdowns of social co- 
hesion that have often been met with state 
violence. This especially applies, the au- 
thor argues, to relations between the cen- 
tral government and Catalonia. 

Mr Preston begins with an earlier resto- 
ration of the monarchy, i1n1876, and the cre- 
ation by Antonio Canovas del Castillo, a 
conservative statesman, of a civilian de- 
mocracy based on electoral manipulation 
by corrupt caciques (political bosses). “Ex- 
cluded from organised politics, the hungry 
masses could choose only between apathy 
and violence,’ Mr Preston writes. Many 
chose the latter, in the form of anarchist 
terrorism. Attempts at reform, from above 
or below, failed. With the encouragement 
of Alfonso XIII, a meddling and frivolous 
king, General Miguel Primo de Rivera took 
power in 1923. His fall brought down the 
monarchy (again). 

The republic that followed offered a 
new start. But its attempts to curb the pow- 
er of the army and the church, grant home 
rule to Catalans and Basques and imple- 
ment land reform, all amid the Depression 
of the 1930s, may have been too ambitious. 
Resistance to this programme was accom- 
panied by a drift to extremes of both right 
and left. This culminated in the military re- 
bellion of July 1936 and the Spanish civil 
wal. Having ground out a bloody victory 


71 


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72 Books & arts 


>» with the crucial initial help of Hitler and 
Mussolini, Franco erected a brutal, intro- 
verted dictatorship. 

It was also a corrupt one, as Mr Preston 
shows. Franco bought off potential rivals 
with opportunities for enrichment. His 
own family, and their entourage, were 
grasping. Franco tooka secret stipend from 
the telephone company and sold donated 
coffee from Brazil on the black market. His 
wife, Carmen, was the terror of Madrid jew- 
ellers, who dared not present their bills. 

After two decades of failed economic 
autarky, 1n 1957 Franco brought in techno- 
crats who opened up the economy, trigger- 
ing growth that created a middle-class ur- 
ban society. Political modernisation would 
come only with Franco’s death, when mod- 
erates in the regime came to terms with an 
opposition that had learned the bitter les- 
sons of past extremism. Despite threats 
from military diehards and the Basque ter- 
rorism of ETA, democracy thrived as the So- 
Clialists and PP alternated in power. But in 
the 21st century blemishes appeared. An 
unchecked property boom led toa bust and 
a Slump. Officials abused savings banks 
and took bribes for re-zoning land. 


Tragic, but how exceptional? 
Mr Preston knits all this together into a 
compellingly readable narrative (even if 
parts are familiar from his earlier books). 
He picks his arch-villains well. They in- 
clude General Severiano Martinez Anido, a 
Sadistic satyr who tried to crush the Cata- 
lan anarchists through murder, torture and 
agents provocateurs; Juan March, a profi- 
teer and tobacco-smuggler who financed 
Franco's coup; Alejandro Lerroux, an “out- 
rageous rogue and virtuoso carpetbagger’” 
who opportunistically moved from left to 
right; and Francisco Largo Caballero, a na- 
ive and vain Socialist leader whose mouth- 
ing of revolution and sabotage of effective 
government helped doom the republic. 
Despite everything, though, Spain be- 
came a developed and socially tolerant de- 
mocracy—and at times Mr Preston’s relent- 
less indictment feels overstated. For 
example, recent Spanish historiography is 
less coruscating in its judgment of the res- 
toration political system. The author is too 
ready to blame Basque terror and Catalan 
separatism on the clumsiness of Madrid, 
rather than on their practitioners. With 
some exceptions, the recent corruption 
Was naively provincial rather than the 
grand larceny of a March or Franco. Albeit 
tardily, it has been punished. Spain ranks 
30th out of 198 countries in Transparency 
International’s index of perceptions of cor- 
ruption, ahead of Israel, Poland and Italy. 
Why has Spain's history been so tragic? 
Spaniards are rightly fed up with being cast 
by foreigners as violent fanatics, and a 
backward exception in Europe. Mr Preston, 
too, rejects that. Most historians highlight 


a weak state, difficult geography with in- 
dustrialisation mainly in peripheral re- 
gions, an army that refused to accept the 
loss of empire, and missed political oppor- 
tunities. “Too many setbacks”, as Santos Ju- 
lia, a Spanish historian who died last year, 
entitled his final book. 

While disgust at corruption has playeda 
role, the political strains of today owe more 
to the slump and the emergence of rival 
populisms in the form of Catalan national- 
ism, Podemos (with its mixture of Lenin- 
ism and Peronism) and Vox. In this respect, 
contemporary Spain looks like the rest of 
Europe as muchas like its own past. & 





Goths v Romans 


Loser’s justice 





Alaric the Goth. By Douglas Boin. WW. 
Norton; 272 pages; $26.95 and £19.99 


HE SMOKE began to rise above the 
FE caneetied roofs of the eternal city on 
August 24th 410AD. The watchmen had not 
seen the gate being opened; they had not 
seen Alaric the Goth creep in. But as night 
turned to day, they saw his works. Rome 
had been besieged and starved on and off 
for two years; it was said to be so hungry 
that mothers fed on their babies rather 
than vice versa. Now it burned and bled. 
Ancient basilicas went up in flames. Wom- 
en were raped in the streets; an elderly one 
was cudgelled as she begged for mercy. 

Amid this panorama of carnage there 
was one more piece of destruction that is 
often overlooked: the annihilation of the 
Gothic reputation. Today, as Douglas Boin 
of Saint Louis University points out in his 
superb book, the word “Gothic” has be- 
come synonymous with all that is “dark, 


The Economist June 20th 2020 


gloomy and macabre’. History, it is often 
Said, is written by the winners—but that is 
only if they can write. If they can't, then 
history is written by the losers, crossly. 

Almost as soon as Alaric, ostensibly the 
victor, decamped to move across Italy, the 
pens of Rome's greatest authors were mov- 
ing across the page. Goths could write a bit 
but they couldn't match this. “My voice 
Sticks in my throat,’ lamented St Jerome, 
“sobs choke my utterance.” The monk Pela- 
gius recorded the universal “terror of death 
and slaughter’; St Augustine started to 
churn out “The City of God”. Each affirmed 
not only the Gothic attack but an iron rule 
of history: never murder a people more lit- 
erate than you. Alaric—like Attila, the Van- 
dals and the Vikings—has paid the price. 

Unfairly, Mr Boin argues, as he writes 
the history that the Goths never managed 
to. No one has undertaken achronicle from 
Alaric’s point of view, a lacuna that makes 
this book worthwhile—and hard to pull off. 
Sources are scant and, as Mr Boin admits, 
his narrative is a patchwork: a snippet of ar- 
chaeology here, a strand of military hand- 
book there, all tied together with excerpts 
from general histories of the period. There 
1s, in truth, not much Alaric the Goth in “Al- 
aric the Goth”. 

Instead, readers get the outline of his 
life—born in the 370s in the Danube delta, 
part of what was then called Gothia, a long 
stint in the Roman army, then disillusion- 
ment—and a lot of brilliant detail. This is 
less a biography than the anatomy of an 
empire. Mr Boin opens up the Rome of the 
fourth and fifth centuries and examines it 
with scientific precision and a wonderful 
turn of phrase, guiding readers with erudi- 
tion and verve into battles in which men’s 
eyes are stabbed by arrows “the way a silver 
toothpick stabbed an olive”. 

He paints a picture of an unbearably di- 
vided world. While soldiers campaign, 
wealthy Romans turn living into “perfor- 
mance art”. In an ancient version of the In- 
Stagram dinner, hosts obsessively record 
the weight of food they serve, as they serve 
it, so that “guests salivated while their 
hosts scribbled”. In yacht-club chatter, idle 
young men talk in learned and aggrandis- 
ing analogies. Sailing around the bay be- 
comes “going after the Golden Fleece”. 

Mr Boin peers closest of all at the indig- 
nities of Gothic life. The migration of Goths 
across Europe is often characterised as a 
barbarian invasion, but the story told here 
is of families struggling to survive rather 
than thugs fighting for the hell of it. Rome 
itself was overrun with Goths long before 
Alaric arrived. By the late fourth century 
30,000 lived in the capital, often as slaves. 
Snatched by traders, Gothic children spent 
their childhoods sweeping the floors of 
farmhouses. Roman border patrols had or- 
ders to separate migrating parents from 


their sons, whom many Gothic mothers >> 


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The Economist June 20th 2020 


> never saw again. Mr Boin offers this detail 
with a nudge, then moves on. Thankfully, 
this is not Trump ina toga. 

Alaric not only survived this difficult 
world; he thrived in it. He was, sources say, 
“more like a Roman” than a Goth. By the 
end of the fourth century, Alaric had fought 
long enough and hard enough that he 
might have expected a reward (respect, sta- 
bility, citizenship). He didn’t get it. A covet- 
ed generalship was summarily terminated. 
He protested, but was ignored. Finally, hu- 
miliated and belittled, on August 24th Ala- 
ric the Goth—or rather, Alaric “more like a 
Roman’—slipped inside the city walls. @ 


Alfredo Jaar 
Opening the 
black box 


An unorthodox artist finds enduring 
meaning in the news 


IKE MUCH Of his art, “Between the Heav- 
| oe and Me’, Alfredo Jaar’s most recent 
video, was drawn not from his imagination 
but from the news. In this case it began 
with a report on the BBC about Hart Island 
off the Bronx. The prison detail at the is- 
land’s cemetery—where, for decades, indi- 
gent New Yorkers were interred in mass 
graves—was working round the clock to 
bury the unclaimed bodies of those who 
had died, alone and unloved, with covid-19. 
“My brain could not comprehend what my 
eyes were Seeing,’ Mr Jaar Says. 

He slowed down the footage, replacing 
the commentary with a haunting tune by 
Anouar Brahem, a celebrated Tunisian oud 
player. Over and over the scene repeats it- 
self: uniformed gravediggers stack coffins 
in a freshly dug trench with solemn delib- 
eration, as if they are making an offering to 
Mother Earth. “Here we have the poorest 
people in New York,” Mr Jaar explains, “the 
anonymous, the invisible, the no-name 
people being buried by prison inmates, 
many of whom are poor and black like 
them. I wanted the film to bea lament.” 

In an artistic tradition made famous by 
Andy Warhol and Robert Rauschenberg, 
his videos force viewers to consider the ef- 
fects of their incessant exposure to horrific 
images. They also highlight the tendency 
of the news to focus on a tragedy, then 
move on. “News events cover reality in 
both senses of the word: reporting it even 
as they conceal it,’ remarked Hartwig Fi- 
scher (now director of the British Museum) 
when he included Mr Jaar’s work in a show 
at the Kunstmuseum Basel in 2005. 

Now 64, Mr Jaar was a teenager in Chile 
when Salvador Allende was ousted ina mil- 
itary coup, but has lived in New York since 


his mid-2o0s. He is not a conventional stu- 
dio artist, reckoning he has travelled 7m 
miles (1.3m kilometres) to create art that is 
meant to provoke. He has staged over 100 
“public interventions”, art-world-speak for 
performances in which audiences gather 
to watch or even take part. In 2019 he 
walked the streets of Edinburgh wearing a 
sandwich board reading “I Can’t Go On, I'll 
Go On”, a quotation from Samuel Beckett. 
Next year, when a retrospective of his work 
opens at the Hiroshima City Museum of 
Contemporary Art, his board will read, 
“Teach Us To Outgrow Our Madness”. That 
is a reference to the Japanese Nobel laure- 
ate Oe Kenzaburo, but itis also what Mr Jaar 
feels like saying “when I see the madness 
that is taking over this planet”. 

“People see new meaning in his work 
every time they confront it,’ says Pablo 
Leon de la Barra, a curator at the Guggen- 
heim Museum, which owns one of his 
best-known pieces, a series of electronic 
billboards called “A Logo for America”. One 
panel superimposes an image of the two 
American continents onto the word 
“AMERICA’, quietly insisting that there is 
more than one kind of American. Another 
enigmatically combines the words “This is 
not America” with a map of the United 
States. When it was shown in Times Square 
in1987, during Ronald Reagan’s presidency, 
viewers interpreted the sequence as a cri- 
tique of his administration’s interference 
in Nicaragua and Grenada. Displayed on 
the square again in 2014, it seemed a com- 
ment on the treatment of migrants. Now, 
Mr Leon dela Barra says, it might be regard- 
edasastatement about racism. 

Mr Jaar’s travels have ground to a halt 
this year. Confined to his apartment in 
SOHO, with books stacked to the ceiling and 
several thousand cps, he has slept in the 
same bed for weeks on end for the first time 
in decades. He has been reading poetry, lis- 
tening to the melancholic music of love 


Chronicle of deaths retold 


Books & arts 


and longing known as saudade, which is 
made most commonly by the Portuguese 
diaspora—and working. “It’s for my mental 
health, as much as anything else,’ he says. 
He will have much to do when the lock- 
down lifts; four big exhibition projects 
have been postponed because of the pan- 
demic, and more are in the offing. 

In August Clara Kim, senior curator at 
Tate Modern in London, hopes to reopen “A 
Year in Art: 1973”, a show that includes 
“Studies on Happiness”, a video installa- 
tion by Mr Jaar that portrays emotional re- 
actions to the coup in Chile. “Violence 
might be invisible to us,” he says. “But it ex- 
ists out there, and we will see the conse- 
quences of it sooner or later.” The power of 
his work, says Ms Kim, stems from his dual 
role as artist and witness—not just through 
the contemporaneous recording of vio- 
lence, but in teasing out responses that 
stretch over decades. 

In the mid-1990s Mr Jaar began to focus 
on the Rwanda genocide. Reports about the 
massacres compelled him to go to the 
country, he recalls; over several trips, he 
took thousands of pictures from which he 
has created installations around the world 
(see picture). Returning to New York he 
found some of his own images so shocking 
that in one work, “Real Pictures 1995”, he 
entombed the photographs in a series of 
black boxes, never to be opened. 

Later this year Mr Jaar’s Rwandan work 
will appear at the Zeitz Museum of Con- 
temporary African Art in Cape Town, the 
first time it has been exhibited in Africa. 
Audiences will once again be forced to 
think about, and beneath, scenes they have 
encountered on television or social media. 
“I want people to see these images,’ Mr Jaar 
says, ‘to actually see them, in order to bring 
them inside in their brain, in their heart, in 
their soul, to try to understand what’s hap- 
pening to us.” As Ezra Pound said of litera- 
ture, MrJaar’s artis news that stays news. @ 





73 


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74 Books & arts 


HOME 
ENTERTAINMENT 











Rewatching “The Prisoner” 


He was nota 
number 


Confinement is not all that makes 
a cult Tv series timely 


MAN ANGRILY quits his job in London 

and drives his sports car home. He 
awakes the next morning, draws the cur- 
tains—and finds himself in a fantastical 
Italianate village. Confused, then indig- 
nant, he tries to leave. But the taxis and 
telephones provide “local service only”. 
The village and its inhabitants are name- 
less. Number 2 is in charge, 
though he answers to an un- 
seen superior. The man is told: 
“you are Number 6.” 

A British television drama 
first screened 1n 1967, “The Pris- 
oner” is either perfect lock- 
down viewing or the opposite, 
depending on your disposi- 
tion. Over 17 episodes, Number 
6 rages against his confine- 
ment and the village's stifling, 
Sinister bureaucracy. “We have 
a Saying here,’ says a villager. “A 
still tongue makes a happy life.” 
The hero demurs. He gets out 
by helicopter, and later in a 
boat fashioned from his win- 
ning entry to the village art 
show, in which all the exhibits exalt Num- 
ber 2. But he is foiled. His handlers were in 
control all along. 

You never learn exactly what his job 
was, but it was plainly secret, official and 
important. Why did he resign? The task of 
successive Number 2s is to trick, cajole, 
bully or torture him into telling. One tries 
to manipulate his dreams. Another con- 
fronts him with his double. Still others 
dangle damsels in distress. None of your 
damn business, he tells them. 

It is easy to over-analyse “The Prisoner’, 
and many fans have. A banner at a recent 
anti-lockdown march in London pro- 
claimed (but garbled) Number 6's cry of de- 
fiance: “I am not a number: I am a free 
man!” According to Andrew Pixley’s guide 
to the series, over-interpretation of the 
story irked its two creators, Patrick McGoo- 
han, the star and executive producer, and 


George Markstein, the script editor. 

Nevertheless, they plainly wanted to 
make their viewers think. “The Prisoner” 
invites you to ponder the relationship be- 
tween the individual and authority— 
though you needn't conclude that a coro- 
navirus lockdown amounts to a conspiracy 
against the people. The potential abuse of 
technology and surveillance is a recurring 
theme. The inhabitants of the village can be 
observed night and day; in one episode 
they absorb a history course, beamed from 
their televisions directly into their brains, 
within seconds. 

At bottom, “The Prisoner” remains a bi- 
Zarre yet brilliant Tv classic, about a spy 
whose masters won't let him go. Though 
expensively made for its time—it was shot 
in colour and on location—it still has plen- 
ty of flaws. The plot can be downright con- 
fusing, not least in the final unmasking of 
Number 1. But it has an abundance of 
charms, including its picturesque setting 
in Portmeirion, north Wales. Above all it 
has McGoohan’s steel-gazed, black-blaz- 
ered hero, railing indomitably against his 
captors. Does he finally escape? Watch it, 
and see for yourself. @ 





The Economist June 20th 2020 


The action of “The Magic Mountain’, 
wrote Thomas Mann in a foreword, takes 
place “a very long time ago’—and even 
though his novel, published in 1924, is set 
in the preceding decade, it evoked a van- 
ished world. It refers to a Germany not yet 
crushed by the first world war and the sub- 
sequent reparations, acountry that still has 
an empire, as well as strict hierarchies and 
conventions. These are scrupulously ob- 
served by the pan-European characters in 
the story, a Bildungsroman and dark com- 
edy of manners in which even the dining 
tables are classified by social status. 

Mann’s fictional sanatorium, the 
Berghof, is probably modelled on the 
Schatzalp, a mansion reachable only by 
foot or funicular, which today is a hotel. 
Practically the whole cast of his novel have 
tuberculosis, which at the turn of the 20th 
century killed one in seven people in Eu- 
rope and America. He presents the symp- 
toms unflinchingly, including “a coughing 
that had no conviction and gave no relief, 
that did not even come out in paroxysms, 
but was justa feeble, dreadful welling-up of 
the juices of organic dissolution”. 

Yet though the disease is everywhere, it 
is discussed euphemistically. 
Newcomers are diagnosed as 
anaemic. As is still the case in 
the rich world, death is hidden. 
“you hear nothing of them, or 
only by chance afterwards,’ 
Joachim says of patients who 
succumb. “Everything is kept 
Strictly private.’ Hans learns 
that corpses are brought down 
the mountain by bobsleigh. 

Surprisingly for a tale of fa- 
tal lung disease, however, the 
tone is gently ironic, a levity 
that offsets the symbolism and 
philosophy. Officially, Hansisa 
visitor, but he lives the life ofa 
patient, which revolves around 





IlIIness in literature 


Climb every 
mountain 


A classic German saga of high-altitude 
sickness is oddly uplifting 


HEN HANS CASTORP makes a mid- 
V V Summer Visit to Davos, where his tu- 
bercular cousin, Joachim, is being treated, 
he expects to be there for three weeks. A job 
at a shipbuilding firm awaits Hans, the un- 
assuming son of a merchant family from 
Hamburg. But he develops a fever, and ends 
up staying in the Swiss Alps for seven 
years. Inthe mountains, time moves elasti- 
cally—days lengthen and years hurry 
past—as it can inalockdown. 


gossip, walks, infatuations, in- 
tellectual discussions, five hearty meals a 
day and a Strict regimen of bed rest, tem- 
perature-taking and alcohol rubs. Hans 
takes to this high-altitude life better than 
Joachim, an officer who longs to return to 
the army. He does—and comes back to the 
mountain even sicker. Hans, by contrast, 
seems cured, and at the close leaves for the 
even deadlier battlefield. 

As with his elongated stay at the sanato- 
rium, so with the novel itself. Based on 
Mann’s own impressions of Davos, where 
his wife was treated, it was conceived as a 
short story, a humorous companion piece 
to “Death in Venice” (itself set during an 
outbreak of cholera). The author expected 
“The Magic Mountain” to find only a small 
audience. But in one of the strange trans- 
formations that illness can effect, it grew 
into an elegant, 900-page reflection on 
mortality, read and revered by millions. @ 


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as part of its efforts to support countries 

and different communities to foster peaceful 
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Economic & financial indicators 


The Economist June 20th 2020 


Economic data 












































Gross domestic product |Consumer prices |Unemployment | Current-account | Budget Interest rates Currency units 

% change on year ago % change onyearago |rate balance | balance 10-yr gov'tbonds _changeon per $ % change 

latest quarter* 20207 latest 2020T | % | % of GDP, 2020" '% of GDP, 2020t _| latest,% year ago,bp |Jun 17th on year ago 
United States 0.3 Qi -5.0 -48 0.1 May 0.7 13.3. May -1.8 -14.0 OW, -135 - 
China 68 Qi -33.8 1.0 2.4 May 40 3.7 O18 0.8 -6.0 26 88 -47.0 7.09 -2.3 
Japan geo! -22 SB)? 0.1. Apr -0.1 2.6 Apr 3.4 -11.1 nil -8.0 107 13 
Britain 16 Q1) -77 -8.7 0.5 May 1.0 3.9 Martt -2.2 -14.9 0.3 -67.0 0.80 nil 
Canada 0.9 Qi -82 -5.1 — -0.4 May 0.5 13.7. May — -34 -9,3 Oey -91.0 1.36 1.50 
Euro area PemQ) -13.6 -8.0 0.1 May 0.4 7.3 Apr 750) -8.3 -0.4 -17.0 0.89 nil 
Austria 29 Qi -11.6 -6.0 0.7 May 0.7 48 Apr 0.1 -6.3 -0.1 -20.0 0.89 nil 
Belgium feo! -13.6 -7.9 0.5 May Oke 5.6 Apr 1.5 aT nil -21.0 0.89 nil 
France 5.0 ai -19.7 -9.9 0.4 May 0.4 8.7 Apr -1.1 -11.0 nil -16.0 0.89 nil 
Germany 23 Q1  -86 -5.8 0.6 May 0.8 3.50 Apt 5.4 -6.1 -0.4 -17.0 0.89 nil 
Greece -12 Qi -62 -7.0 -1.1. May -0.4 14.4. Mar -3.0 -6.1 ies) -145 0.89 nil 
Italy 54 a1 -196 -108 -0.2 May -0.2 6.3 Apr 1.6 -12.0 1.4 -93.0 0.89 nil 
Netherlands 0.5 Qi -67 -6.0 1.2. May 0.9 3.8 Mar 4.0 -5.4 -0.3 -25.0 0.89 nil 
Spain 41 qi -194 ~~ -11.0 -0.9 May -0.3 14.8 Apr 2.2 -10.0 0.5 4.0 0.89 nil 
Czech Republic -1.7 Qi -12.7 -7,.] 2.9 May 2.6 2.3 Aprt -1.0 -5.6 0.9 -70.0 227 -3.9 
Denmark 04 qi -8.0 -4.5 nil May 0.4 5.4. Apr DS -6.0 -0.3 -7.0 6.64 0.1 
Norway foi = -60 55 1.3 May 0.2 3.6 Mart# 1.6 -0.9 0.6 -86.0 O55 -8.5 
Poland Qi = -16 -3.5 2.9 May 3.0 6.0 Mays -14 -5.2 1.4 -98.0 3.97 -43 
Russia om Q1 na -5.2 3.0 May 4.2 5.8 Aprs 0.2 -42 Del -201 69.7 -7.8 
Sweden 04 a1 05 5.1 nil May 0:5 9.0 Mays 1.2 -4.4 nil -40 9.35 1.4 
Switzerland -1.3 Q1 -10.0 -6.0 -1.3 May -1.0 3.4 May fal -6.3 -0.4 dee 0.95 58 
Turkey 45 Qi na 5.9 11.4 May 2 13.2 Mars -2.1 -6.3 Ilo’ -671 6.86 -14.4 
Australia 14 qa -12 -4.2 _. & 1.6 7.1 May -2.5 -6.8 0.9 -47.0 1.45 0.7 
Hong Kong -8.9 Qi -19.6 -3.3 1.8 Apr 1.4 5.9 Mayt# 26 -5.3 0.7 -90.0 7.75 lee 
India et 2 -5,.8 Brom Mar 3.4 23.5 May -0.4 -7.4 oye -109 76.2 -8.2 
Indonesia 3.0 Qi na 1.0 2.2 May is) 5.0 ais -1.4 -6.5 fl -53.0 14,083 1.8 
Malaysia oo na -5.1 -2.9 Apr nil 5.0 Aprs 310 -6.8 3.1 -66.0 4.28 -2.3 
Pakistan 0.5 2020" na -1.6 8.2 May 74 5.8 2018 -1.6 -10.2 g5 tt -560 165 5.2 
Philippines -0.2 Qi -18.9 -1.3 2.1 May ik aon tal -7.6 3 -200 50.1 4.2 
Singapore O07 ai -47 -6.0 -0.7 Apr -0.2 24 Qi es -13.5 0.9 -105 1.39 -1.4 
South Korea 14 a1 -5.0 -2.1 -0.3 May 0.5 4.5 Mays 4.0 -47 1.4 -21.0 1,214 -2.3 
Taiwan feo! = -3.6 -2.0 -1.2 May -0.8 4.1 Apr 11.9 -5.1 0.5 -24.0 29.6 6.5 
Thailand Bee —si “85 5.3) -3.4 May 0.2 1.0 Mars 3.4 -6.5 feao 1c (0 ee 0.3 
Argentina oeeo4 «= -3.9 -9.0 A34 Mayt 45.2 8.9 Qa4s =O som na -464 69.6 -36.8 
Brazil -0.3 Qi -6.0 -7.5 1.9 May 2 12.6  AprS# -2.5 -16.3 oe -397 528 -25.9 
Chile 04 a1 127 -48 2.8 May 32 9.0 AprS# -45 -11.0 2.6 -89.0 798 -12.3 
Colombia 04 qi -9.2 -7.] 2.9 May 19 19.8 Aprs -5.2 -7.1 59 -30.0 3,754 -12.4 
Mexico 14 a1 -49 -9.2 2.8 May 26 373) Mat -2.7 -4.6 6.0 -171 223 -13.8 
Peru 34 qi -19.5 -9,2 1.8 May ey 7.6 Mars -2.2 -13.2 3.9 -105 3.49 -40 
Egypt Beem 04 na 0.9 48 May 6.8 me aon -40 -11.0 na nil 16.2 3.6 
Israel 04 a1 -68 -40 -1.6 May -1.0 Sean ow -11.3 oy -92.0 345 4.6 
Saudi Arabia 0.3 2019 na -5.2 1.3 Apr 12 57 04 -6.4 -11.2 na nil 3:15 nil 
South Africa 05 94 -14 -7.0 41 Mar 3.6 29.1 Q4s -2.6 -12.4 9.4 107 ieee -13.7 


Source: Haver Analytics. *% change on previous quarter, annual rate. The Economist Intelligence Unit estimate/forecast. SNot seasonally adjusted. ¥New series. **Year ending June. TLatest 3 months. ##3-month moving 
average. §§5-year yield. TDollar-denominated bonds. 


Markets Commodities 


% change on: % change on: 























The Economist commodity-price index 


Index one Dec 31st index one Dec 31st % change on 
Inlocal currency — . Jun 17th week 2019 Jun 17th week 2019 2015=100 Jun 9th Jun 16th* month year 
United States S&P 500 ey licks -2.4 -3.6 Pakistan KSE 33,848.7 -3.5 -16.9 Dollar Index 
United States NAScomp 9,910.5 -1.1 10.5 Singapore STI 2,669.6 -47 =i7 2 All tems oO 110.4 26 -6.4 
China Shanghai Comp 2,935.9 -0.3 -3.7 South Korea KOSPI 2,141.1 -2.5 -2.6 Food 928 913 ie. -6.4 
China Shenzhen Comp 1,903.8 LS 10.5 Taiwan TWI 11,534.6 -1.6 -3.9 Industrials 
Japan Nikkei 225 22,455.8 -2.9 -5.1 Thailand SET 1,376.2 -3.0 -12.9 All 127.9 128.3 7 -6.4 
Japan Topix 1,587.1 -2.3 -7.8 Argentina MERV 40,471.2 -12.9 -2.9 Non-food agriculturals 90.1 895 28 ey 
Britain FTSE 100 ey ASeuS) -1.2 -17.1 Brazil BVSP 95,547.3 0.9 -17.4 Metals 139.2 139.8 6.3 -4 8 
Canada S&P TSX 15,428.7 -1.7 -9.6 Mexico IPC 37,897.2 -1.0 -13.0 Sterling Index 
Euro area EUROSTOXX 50 = 3,267.3 -0.8 -12.8 Egypt EGX 30 10,905.8 -0.3 -21.9 mircere 133.7 134.1 05 66 
France CAC 40 4,996.0 -1.1 -16.4 Israel TA-125 1,414.7 -1.7 -12.5 
Germany DAX* 12,382.1 “1.2 -6.5 Saudi Arabia Tadawul 7,309.7 -0.3 -12.9 Euro Index 
Italy FTSE/MIB 19,5859 -0.9 “oul South Africa JSE AS 54,027.4 0.7 5.4 All items 108.4 109.0 nil -6.8 
Netherlands AEX 566.5 ih -6.3 World, dev'd MSCI ANTS: -2.2 -6.0 Gold 
Spain IBEX 35 7,478.7 -2.4 -21.7 Emerging markets MSCI 994.6 -1.8 -10.8 $ per oz 1,718.7 1,727.3 0.7 22 1 
Poland WIG 50,312.8 -2.3 -13.0 
Russia RTS, $ terms 12379 fe 20.1 sient 
Switzerland SMI (he A oS -3.9 US corporate bonds, spread over Treasuries Sperbarel 43 
Turkey BIST 110,939.9 ial -3.0 Dec 31st Sources: Bloomberg; CME Group; Cotlook; Datastream from Refinitiv; 
Australia All Ord. 6109.2 -26 -10.2 Basis points latest 2019 ~—~—~Fastmarkets; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool 
Hong Kong Hang Seng 24,4814 23 132 Investment grade 199 14] Services; Thompson Lloyd & Ewart; Urner Barry; WS). *Provisional. 
India BSE 33,507.9 -2.2 -18.8 High-yield 650 449 
Indonesia IDX 4,987.8 14 20.8 Sources: Datastream from Refinitiv; Standard & Poor's Global Fixed For more countries and additional data, visit 
Malaysia KLSE 1,526.3 soa =o Income Research. *Total return index. Economist.com/indicators 


Graphic detail The Sahel 


More than 1.5m people have fled fighting in the central Sahel 


Deaths from conflict* 
January 1st 2019-June 6th 2020 = 1° 10 50 
By group involved 


Jihadist @ Islamic State in the Greater Sahara (ISGS) 
© Jama’at Nasr al-Islam wal Muslimin (JNIM) 


Ethnic 
militia 


® Dan Na Ambassagou, Dogon, Dozo, 
Fulani, Koglweogo and other groups 


Displaced people?, May 31st 2020, m 
0 0.25 0.50 0.75 1.0 
Burkina Faso 
Niger 
Mali 





Some 900 people died in clashes 
involving ethnic militias in 2019, 
a 300% increase from 2017 


Bamako 


The next 
Afghanistan? 


Jihadists and ethnic militias are 
ravaging a fragile African region 


ESTERN GOVERNMENTS have long de- 

bated whether the costs of interven- 
ing in dangerous parts of the world exceed 
the risks. In February the United States 
signed a peace deal with the Taliban in Af- 
ghanistan. But just as America extricates it- 
self from one conflict, a power vacuum in 
Africa’s Sahel may drag it into another. 

The Sahel, asemi-arid strip south of the 
Sahara desert spanning 4,000 miles 
(6,400km), is unusually troubled. Its 
hinterlands are far from any city and main- 
ly populated by nomads. The state’s writ 
does not hold; public services barely exist. 
The Sahel’s borderlands have long been 
dangerous: just 3.5% of the population of 
north and west Africa lives within 10km of 
an international frontier, but10% of deaths 
from armed violence occurred in these ar- 
eas between 1997 and 2019. 

Jihadists are now entrenching them- 
selves in ungoverned spaces. After Islamic 


March 2019, 164 deaths 
Dan Na Ambassagou 
a L attacked Fulani villages 


JNIM, an umbrella coalition of four 
al-Qaeda-aligned groups, formed in 4 
March 2017. It aims to drive foreign 

forces out of Mali and to impose its 

version of Islamic law 


MALI 


Ouagadougou ». 


BURKINA FASO 






The Economist June 20th 2020 77 


The Sahel 


= June 3rd 2020 


The head of al-Qaeda in the 
region, Abdelmalek Droukdel 
was killed in an operation 

led by French forces 


NIGER 


In October 2016 Islamic State 
acknowledged the ISGS as an affiliate. 
In recent years the group has expanded 
from Mali to neighbouring Niger and 
Burkina Faso 


.. January 2020, 166 deaths 
“——|SGS attacked a military base 


250 km 


*Includes all reported civilian and combatant fatalities 
Tnternally displaced and refugees 


Sources: Armed Conflict Location and Event Data Project; Menastream; UNHCR 


State was ousted from the Middle East, it 
began to regroup in the Sahel. At times it 
has co-operated with al-Qaeda; at others, 
the two groups have clashed. To sow terror 
and conquer territory, the jihadists have 
committed atrocities, such as murdering a 
mentally disabled man, hiding a bomb on 
his corpse and blowing up 17 mourners at 
his funeral. Some 4,800 people died in bat- 
tles or acts of terror in 2019, a six-fold in- 
crease on 2016. Another 3,900 have died so 
far this year. 

The recent surge in conflict cannot be 
attributed to Islamists alone. Ethnic mili- 
tias, such as Dan Na Ambassagou (“hunters 
who trust in God”) and Koglweogo (“guard- 
ians of the bush”), have been involved in 
17% of deaths since January 2019. The gov- 
ernments of Mali and Burkina Faso have al- 
legedly helped arm the groups so that they 


Deaths from conflict* 


Burkina Faso . 


Niger Mali 


2015 16 17 18 19 


can protect civilians. In practice, the 
groups are mostly killing Fulanis, a largely 
Muslim minority. That has led some Fula- 
nis to join the jihadists or to form their own 
militias. The killing has displaced 1.7m 
people across the central Sahel. In 2020 an 
average of 3,000 people a day have fled. 

Armies of all stripes are trying to regain 
control, sometimes brutally. Soldiers from 
Burkina Faso, Mali and Niger have mur- 
dered hundreds of civilians this year. 
Meanwhile, the UN has 15,000 peacekeep- 
ers in Mali. France has 5,100 troops in the 
Sahel to fight jihadists. America has 1,200, 
mainly for intelligence and logistics— 
though Donald Trump is considering with- 
drawing some of them. That would be a 
boon for jihadists, who on June 3rd lost 
Abdelmalek Droukdel, the head of al- 
Qaeda's network in the region, to a French 
raid helped by American intelligence. 

These various troop deployments are 
not large enough to police the area, which 
is as large as India. To dislodge the jiha- 
dists, governments will have to govern. Be- 
sides security, locals crave jobs and health 
care. However, given the West's fatigue 
after its failures in Afghanistan and else- 
where, countries in the Sahel can expect 
only modest help from abroad for their 
own nation-building efforts. & 








The lark of metro Barbés 


Lily Lian (née Liliane Lebon), the last chanteuse on the 
streets of Paris, died on May 24th, aged 103 


HE FIRST OF May had a special place on Lily Lian’s calendar. It 
Tvas her birthday, to begin with. It was also May Day, the work- 
ers’ holiday, when she would sing revolutionary songs at the Com- 
munards’ Wall, the Mur des Fédérés, in Pere Lachaise cemetery. 
Her father, a fighter in the Resistance, was buried close to it with 
other communist heroes. She felt proud to salute him, even if her 
view of him was scarred by bitter rows. And May Day was the féte du 
muguet, when strolling vendors sold lilies-of-the-valley to pass- 
ers-by. These sprang up in the woods, and so had she, a love-child 
conceived in some mossy corner near Versailles. She and the flow- 
er-sellers often found themselves together by the Wall. 

The Mur des Fédérés was a fine place to sing, though she had 
others. La Madeleine drew wedding crowds and glowing-after- 
mass congregations. Railway stations were good, especially if they 
had arcades for shelter when it rained, though a rainy day was a 
washout, generally. Her favourite pitch was the Barbes-Roche- 
chouart metro station, by the grilles where passengers changed 
from the surface to the underground line. There she would stand 
with her group—two or three musicians, with a friend to hawk the 
scores—and sing through her tin megaphone the people's favour- 
ites. These hardly varied over the years: “Le chant des Partisans’, 
“Le petit vin blanc”, “On boit I’café au lait au lit”, time and again to 
the crowd until they all joined in. 

It was nota grand living, but it was decent. She was not begging, 
which was important, since begging was not allowed. The trade 
was Strictly regulated by the préfecture de police, with a permit 
needed to sing, and by the groups themselves, who drew numbers 
out of a hat each week to allocate their pitches. When she first puta 
toe on the streets, in the mid-1930s, there were 30 others. It was a 
competitive business, but she could not cut her prices; at 20 francs 
a go, she needed to sell 100 scores at each performance just to pay 
the rent. Luckily she was healthy and her voice strong, since she 


elivery All over Pakistan https://cssbooks.net 


The Economist June 20th 2020 


stayed out for 12 hours a day and in most weathers—even in tem- 
peratures of ten degrees below, when people would run out of cafés 
with mulled wine to warm her up. War interrupted things, but after 
that great Liberation day in August 1944, when she belted out “La 
Marseillaise” as de Gaulle appeared on the Champs-Elysées and 
found the crowd joining her, she knew she had arrived. 

Her timing seemed strange to some, just as her metier was fad- 
ing. But singing made her feel free; and what she was doing was im- 
portant. She was continuing a long tradition of popular songs in 
the street, one first organised in the revolution of 1789 to stir up 
citizen spirit and raise morale. She thought of herself as a teacher, 
promoting songs (a few new ones, like “La Mer”, mixed in with the 
old), getting the people to learn them, and selling them scores so 
that they could practise at home. It was a truly communal enter- 
prise. Another favourite pitch was outside the giant Renault fac- 
tory in the suburbs, where at midday when the siren sounded a 
wave of workers in blue overalls would stream out and, with luck, 
cluster round her, chewing their casse-croute as they listened. She 
was closer to her audiences than any film star; she could feel them 
press round her, watch how they reacted, notice the women with 
their prams or the passing cyclists pausing to listen, see new lovers 
leaning on each other as they sang from a score. Spreading love in 
songs was another job she was doing. 

Street singing combined the two essentials in her life. One was 
Paris, specifically on or near the place de la Nation and the rue de 
Buzenval, where she was born and where she lived for her last 70 
years. Her popular name was “Lily Panam’, argot for “Paris Lily”. As 
a child she had been dragged to le Nord fora while, to a farmhouse 
half-drowned in mud; she pined for the sparkling city she had seen 
from her parents’ tiny mansard flat. She needed pavements. And 
she needed to sing, so ardently that nothing could stop her. As she 
ran errands or peeled vegetables, she sang. As her parents split up, 
with their new partners variously abusing her, she cried a bit, 
shouted back, but sang. At 18, having definitively run away with 
five francs in her pocket, she was posing for naked tableaux in Pi- 
galle. During the German Occupation she hid in a cousin's hotel to 
escape forced labour. Between times she did shop-work, and sang. 

The street was her escape. Yet she could not help dreaming of 
Stardom, too. It was possible. In 1935 she had encountered Edith 
Piaf, a little scrap of awoman ina shabby black dress, performing 
on the street illegally. She agreed to watch out for the police on 
Sundays, and fora spell Piaf coached her in how to sing as she did, 
from the heart and guts. But soon she was discovered, and their 
ways parted. When Piaf invited her to come and see her at Gerny’s, 
an ultra-chic cabaret, she felt too shy to go. 

Street singing was dying fast, though. By the beginning of the 
1950s those 30 groups were fast disappearing. Soon she was the 
last. And more glittering worlds beckoned: cabaret, variety, film, 
television. She had tried film once, for Marcel Carné in “Les Portes 
de la Nuit”, but had been fired for saying that she couldn't imagine 
singing the film’s main number in the street. For three years, de- 
spite being married (marriage never got in her way), she kept com- 
pany with Vincent Scotto, an old, grey, high-living songwriter, in 
hopes he might make a star of her. But he tried to take her over, 
changing her name, her hair and her clothes. Especially, he 
stopped her singing in the street; so she marched out. 

There were recordings later, and regular appearances on a TV 
show compered by Pascal Sevran, whom she had helped when he 
Started out in1963. No breakthrough came, though. Occasionally in 
the 1970s she would do a little turn on the Paris streets, ringing out 
the old songs while the station queues looked on, largely uncom- 
prehending. The city had changed. Most people ran now; they had 
no time to stop and listen any more. Fraternité and gaiety had gone, 
with the songs. But every bit that was left seemed to gather round 
her at the local bistro near her flat in rue de Buzenval where she still 
lived in proud independence, raising a song and a glass to her on 
her1ooth birthday in 2017, on the first of May. &@ 


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