Brazil’s fall Dilma Rousseff and the disastrous year ahead Islamic State driven out of Ramadi Xi Jinping’s first tweet The mad world of travel visas Japan and South Korea mend fences Fin tech whaling and venture capitalJANUARY 2ND–8TH 2016 The Economist January 2nd 2016 3 Daily analysis and opinion to supplement the print edition, plus audio and video, and a daily chart Economist com E mail newsletters and mobile edition Economist comemail Print edition available online by 7pm London time each.
Islamic State driven out of Ramadi Xi Jinping’s first tweet The mad world of travel visas Japan and South Korea mend fences JANUARY 2ND– 8TH 2016 Fin-tech: whaling and venture capital Brazil’s fall Dilma Rousseff and the disastrous year ahead Contents The Economist January 2nd 2016 The world this week Leaders Latin America Brazil’s fall Travel visas Sticker shock Republican tax plans Be serious Global inflation Low and behold 10 Internet security When back doors backfire On the cover Disaster looms for Brazil: leader, page Latin America’s biggest economy faces another lost decade, pages 13-15 Letters 11 On business, species, elections, whistleblowers, plurals, Donald Trump The Economist online Briefing 13 Brazil’s crisis Irredeemable? Daily analysis and opinion to supplement the print edition, plus audio and video, and a daily chart Economist.com E-mail: newsletters and mobile edition Economist.com/email Print edition: available online by 7pm London time each Thursday Economist.com/print Audio edition: available online to download each Friday Economist.com/audioedition Volume 418 Number 8970 Published since September 1843 to take part in "a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress." Editorial offices in London and also: Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Lima, Mexico City, Moscow, Mumbai, Nairobi, New Delhi, New York, Paris, San Francisco, São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC United States 17 Republican tax plans Indecent disclosure 18 Race on campus Of slavery and swastikas 19 Rating police officers Revenge of the nerds 22 Election forecasting Prediction 2016 23 Lexington Pitchfork politics The Americas 25 Human rights in El Salvador Digging for justice 26 Argentina’s president A fast start Asia 27 Japan and South Korea Apologies 28 Family planning in Vietnam Running deer 28 Thailand’s insurgency No end in sight 30 India’s economy One country, many markets China 31 Social media Weibo warriors 32 Supply-side economics Reagan’s Chinese ghost Middle East and Africa 33 Iraq Reclaiming Ramadi 34 Christians in the Middle East And then there were none 35 Enforcing morality No sex please, we’re Middle Eastern 36 Ethiopia What if they were free? Europe 39 Russia’s Far East Turning towards China 40 Vladivostok’s new casino Russian roulette 40 Spanish politics The chore of the Spanish succession 41 Polish politics Catholic talk radio 41 Educating refugees Learning the hard way Republicans The candidates’ tax plans are welcome for their detail, but not their contents: leader, page Some of the schemes for fixing America’s taxes are exorbitant, page 17 Opinions vary on whether firms can be “socially responsible” and still avoid paying taxes: Schumpeter, page 52 Islamic State By retaking Ramadi, Iraq’s security forces have won a morale-boosting victory But there is still an awful lot to do, page 33 Japan and South Korea A surprise deal over wartime sex slaves may soothe troubled relations between two democratic neighbours, page 27 Contents continues overleaf Contents Xi Jinping’s first tweet The Communist Party’s battle with social media is bitterly fought, page 31 Travel visas They have their uses, but the burden they impose is too high: leader, page Governments are deterring business travellers and tourists with cumbersome visa requirements that little to make their countries safer, page 49 The Economist January 2nd 2016 Britain 43 Funding the police Counting up the coppers 44 Floods Northern waterhouse 45 Bagehot Bring on the tempest Science and technology 59 Aircraft engines Flying’s new gear 60 The Nobel prizes Throw caution to the wind? 61 Meteorology Barmy weather International 46 The undiscovered world A new breed of explorer Books and arts 62 The consequences of 1916 A most terrible year 63 Kennedy’s other crisis China, India and the CIA 64 Ukraine’s history Keeping hope alive 65 Non-Western music Voyages of discovery 65 New film “The Revenant” bears down Business 49 Travel visas A strange sort of welcome 50 Activists and resources companies Icahn, you can’t 50 Capital spending Diggers and data centres 51 Cruise lines Eastward ho! 52 Schumpeter Socially responsible, tax-avoiding companies 53 54 55 56 57 58 Finance and economics Global inflation Low for longer The first VCs Fin-tech Buttonwood Demystifying 2016 European insurance firms One rule to bind them all South-East Asian integration More hat than cattle Free exchange Escaping low interest rates 68 Economic and financial indicators Statistics on 42 economies, plus a closer look at the fastest- and slowestgrowing economies Obituary 70 Elsie Tu From missionary to firebrand Weather The rain gods have brought a dreadful December around the world, page 61 The anger rises in pace with the water across England’s inundated northern cities, page 44 Subscription service For our latest subscription offers, visit Economist.com/offers For subscription service, please contact by telephone, fax, web or mail at the details provided below: North America The Economist Subscription Center P.O Box 46978, St Louis, MO 63146-6978 Telephone: +1 800 456 6086 Facsimile: +1 866 856 8075 E-mail: customerhelp@economist.com Latin America & Mexico The Economist Subscription Center P.O Box 46979, St Louis, MO 63146-6979 Telephone: +1 636 449 5702 Facsimile: +1 636 449 5703 E-mail: customerhelp@economist.com Subscription for year (51 issues) United States Canada Latin America US $136.68 (plus tax) CA $136.68 (plus tax) US $289 (plus tax) Principal commercial offices: 25 St James’s Street, London sw1a 1hg Tel: 020 7830 7000 Rue de l’Athénée 32 1206 Geneva, Switzerland Tel: 41 22 566 2470 750 3rd Avenue, 5th Floor, New York, NY 10017 Tel: 212 541 0500 1301 Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Tel: 852 2585 3888 Whales Before tech startups, financiers had whaling, page 54 Other commercial offices: Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore PEFC certified PEFC/29-31-58 This copy of The Economist is printed on paper sourced from sustainably managed forests certified to PEFC www.pefc.org © 2016 The Economist Newspaper Limited All rights reserved Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited The Economist (ISSN 0013-0613) is published every week, except for a year-end double issue, by The Economist Newspaper Limited, 750 3rd Avenue, 5th Floor New York, NY 10017 The Economist is a registered trademark of The Economist Newspaper Limited Periodicals postage paid at New York, NY and additional mailing offices Postmaster: Send address changes to The Economist, P.O Box 46978, St Louis, MO 63146-6978, USA Canada Post publications mail (Canadian distribution) sales agreement no 40012331 Return undeliverable Canadian addresses to The Economist, PO Box 7258 STN A, Toronto, ON M5W 1X9 GST R123236267 Printed by Quad/Graphics, Hartford, WI 53027 The world this week Iraq’s armed forces recaptured Ramadi, the capital of Anbar province, which fell to Islamic State in May and is just 100km from Baghdad The country’s prime minister, Haider al-Abadi, said that IS would be driven from his country by the end of 2016 IS also suffered fresh reverses in Syria; on December 26th it lost the important power-generating Tishreen dam to a mainly Kurdish force Saudi Arabia’s stockmarkets fell sharply after it announced swingeing spending cuts to close a gaping budget deficit Saudi public finances have been hurt by declining oil revenues In the middle of 2015 Brent crude was trading at $65 a barrel; now it is under $38 An outbreak of Ebola that rampaged through three African countries officially ended when the World Health Organisation declared that Guinea was free of the disease The outbreak, which started two years ago, killed some 11,000 people, most of them in Guinea, Liberia and Sierra Leone Stockmarkets responded positively to the Federal Reserve’s decision on December16th to raise interest rates for the first time since 2006 After months of dithering the central bank lifted the range for its benchmark rate by a quarter of a percentage point to between 0.25% and 0.5% Martin Shkreli was arrested by the FBI on December17th and charged with securities fraud Mr Shkreli made the headlines in 2015 when a drugs company he ran bought the rights to a medicine and raised its price by 5,000% The (unrelated) charges against Mr Shkreli, which he denies, pertain to his time as a hedge-fund manager Poland’s right-wing government passed a law requiring the constitutional court to approve decisions by a twothirds majority, and with at least 13 of the 15 judges present The law will force the court to accept disputed new judges whom the government has appointed It will also make it much harder to strike down new laws The opposition staged furious demonstrations Spain held an election before Christmas, which resulted in no stable majority The ruling People’s Party of Mariano Rajoy came first and the Socialists second Two smaller parties took seats, breaking the traditional two-party system Brazil’s finance minister, Joaquim Levy, resigned on December18th He came into office in January 2015 with a mandate to slash the budget deficit but was thwarted by a severe recession and political turmoil His successor is Nelson Barbosa, who was the planning minister A group of Central American countries plus Mexico reached an agreement to allow some of the 7,000 migrants from Cuba who are stuck on Costa Rica’s border with Nicaragua to travel to the United States Nicaragua had blocked their entry The migrants will now be airlifted to El Salvador and continue by bus The number of migrants from Cuba has increased since a diplomatic thaw with the United States began in 2014 Many fear that the rapprochement will end The Economist January 2nd 2016 the United States’ policy of accepting émigrés from Cuba if they reach American soil Argentina lifted exchange controls and allowed the peso to float freely, days after the inauguration of its new president, Mauricio Macri This forms part of a liberalisation programme to reverse populist policies of the outgoing government of Cristina Fernández de Kirchner Carlos Rosales Mendoza, the founder of La Familia Michoacana, a Mexican drug gang, was found dead along with the bodies of three other people near a motorway in western Mexico He was on the mostwanted list of the Drug Enforcement Agency in the United States A landslide in the southern Chinese city of Shenzhen killed seven people and left dozens of others missing Officials called it an “industrial safety accident”, caused by a collapsing heap of construction waste An official who had once overseen the site committed suicide The chairman of one of China’s largest state-owned mobile operators, China Telecom, is being investigated by anti-graft officials The businessman, Chang Xiaobing, is among several senior executives who have been targeted in an anticorruption campaign being waged by President Xi Jinping Japan and South Korea agreed to settle a long-standing dispute over women forced to work in Japanese brothels during the second world war Japan apologised and said it would pay ¥1 billion ($8.3m) to help victims The bodies of six American troops killed by a Taliban suicide-bomber near Bagram air base in Afghanistan were flown home It was the deadliest attack on American personnel in the country in years A sizeable contingent of troops is to remain in Afghanistan until at least the start of 2017 The season of goodwill extended to America’s House of Representatives, which passed a $1.8 trillion spending measure before Christmas with little argument and thus avoided a government shutdown Paul Ryan, the new Speaker, was commended for his adroit handling of the bill Other economic data and news can be found on page 68-69 Leaders The Economist January 2nd 2016 Brazil’s fall Disaster looms for Latin America’s biggest economy A T THE start of 2016 Brazil should be in an exuberant mood Rio de Janeiro is to host South America’s first Olympic games in August, giving Brazilians a chance to embark on what they best: throwing a really spectacular party Instead, Brazil faces political and economic disaster On December16th Fitch became the second of the three big credit-rating agencies to downgrade Brazil’s debt to junk status Days later Joaquim Levy, the finance minister appointed by the president, Dilma Rousseff, to stabilise the public finances, quit in despair after less than a year in the job Brazil’s economy is predicted to shrink by 2.5-3% in 2016, not much less than it did in 2015 Even oil-rich, sanction-racked Russia stands to better At the same time, Brazil’s governing coalition has been discredited by a gargantuan bribery scandal surrounding Petrobras, a state-controlled oil company And Ms Rousseff, accused of hiding the size of the budget deficit, faces impeachment proceedings in Congress As the B in BRICS, Brazil is supposed to be in the vanguard of fast-growing emerging economies Instead it faces political dysfunction and perhaps a return to rampant inflation Only hard choices can put Brazil back on course Just now, Ms Rousseff does not seem to have the stomach for them Dismal Dilma Brazil’s suffering, like that of other emerging economies, stems partly from the fall in global commodity prices But Ms Rousseff and her left-wing Workers’ Party (PT) have made a bad situation much worse During her first term, in 2011-14, she spent extravagantly and unwisely on higher pensions and unproductive tax breaks for favoured industries The fiscal deficit swelled from 2% of GDP in 2010 to 10% in 2015 Brazil’s crisis managers not have the luxury of waiting for better times to begin reform (see pages13-15) At 70% of GDP, public debt is worryingly large for a middle-income country and rising fast Because of high interest rates, the cost of servicing it is a crushing 7% of GDP The Central Bank cannot easily use monetary policy to fight inflation, currently 10.5%, as higher rates riskdestabilising the public finances even more by adding to the interest bill Brazil therefore has little choice but to raise taxes and cut spending Mr Levy made a game attempt to renovate the building while putting out the fire He trimmed discretionary spending by a record 70 billion reais ($18 billion) in 2015 and tightened eligibility for unemployment insurance But it was not enough The recession dragged down tax revenues Ms Rousseff gave her finance minister only lukewarm support and the PT was hostile towards him The opposition, intent on ousting the president, was in no mood to co-operate Although he was a senior treasury official during Ms Rousseff’s disastrous first term, Nelson Barbosa may be able to accomplish more as finance minister He has political support within the PT He also has bargaining power, because Ms Rous- seff cannot afford to lose another finance minister One early test will be whether Mr Barbosa persuades a recalcitrant Congress to reinstate an unpopular financial-transactions tax A central target should be pensions The minimum benefit is the same as the minimum wage, which has risen by nearly 90% in real terms over the past decade Women typically retire when they are 50 and men stop work at 55, nearly a decade earlier than the average in the OECD (a club of mostly rich countries) Brazil’s government pays almost 12% of GDP to pensioners, a bigger share than older, richer Japan If Brazil is to fulfil its promise, much, much more is needed A typical manufacturing firm spends 2,600 hours a year complying with the country’s ungainly tax code; the Latin American average is 356 Labour laws modelled on those of Mussolini make it expensive for firms to fire even incompetent employees Brazil has shielded its firms from international competition That is one reason why, among 41 countries whose performance was measured by the OECD, its manufacturing productivity is the fourth-lowest To reform work and pensions, Ms Rousseff must face up to problems that have been decades in the making Some 90% of public spending is protected from cuts, partly by the constitution which, in 1988, celebrated the end of military rule by enshrining generous job protection and state benefits Because it is so hard to reform, Brazil’s public sector rivals European welfare states for size but emerging ones for inefficiency Long a drain on economic vitality, Brazil’s overbearing state is now a chief cause of the fiscal crisis Overcoming such deep-rooted practices would be hard for any government In Brazil it is made all the harder by a daft political system, which favours party fragmentation and votebuying and attracts political mercenaries who have little commitment either to party or to programme The threshold for a party to enter the lower house of Congress is low; today 28 are represented, adding to the legislative gridlock Congressmen represent entire states, some as populous as neighbouring Latin American countries, which makes campaigning ruinously expensive—one reason why politicians skimmed off huge amounts of money from Petrobras It is therefore hard, despite Mr Barbosa’s advantages, to feel optimistic about the prospects for deep reform Voters hold politicians in contempt The opposition is bent on impeaching Ms Rousseff, a misguided battle that could dominate the political agenda for months The PT has no appetite for austerity Achieving the three-fifths support in both houses of Congress needed for constitutional reforms will be a tall order Reckless Rousseff And if Ms Rousseff fails to bring about change? Most of Brazil’s borrowing is in local currency, which makes default unlikely Instead, the country may end up inflating away its debts Brazil’s achievement has been to lift tens of millions of people out of rag-and-flip-flop poverty Recession will halt that, or even begin to reverse it The hope is that Brazil, which has achieved hard-won economic and democratic stability, does not lapse once again into chronic mismanagement and turmoil Leaders The Economist January 2nd 2016 Travel visas Sticker shock They have their uses, but the burden visas impose on travellers and recipient countries is too high V ISAS are necessary evils They offer governments a way to control their borders, whether to regulate the flow of immigrants or to pick out threats to security But the paperwork and fees they entail also deter legitimate tourists and business travellers Researchers at the Cato Institute, a libertarian thinktank, reckon that eliminating all travel visas to the United States would add between $90 billion and $123 billion in annual tourist spending By one estimate, introducing visa restrictions can lower trade and foreign direct investment between a pair of countries by as much as 25% The job of policymakers is to strike the right balance between such costs and benefits On short-term business and tourist visas, they have failed Take security Visas, proponents say, keep countries safer by controlling who is able to enter That is true, but they are not very efficient Terrorists can be home-grown as well as foreign, qualify for visas (as the 9/11 attackers did) or slip across borders illegally Imposing restrictions on the basis of nationality is the bluntest of instruments, scooping up legions of ordinary tourists and travellers as well as the occasional suspect America’s decision to tighten the rules for anyone who has recently been to Iran, Iraq, Sudan and Syria will affect aid workers and plotters alike It is a similar story with unauthorised migration Identifying visitors who might overstay their welcome is a core duty of visa officers Western countries often require several months’ bank statements, pay slips, proof of financial and property holdings, tax returns and letters from bosses promising that their employees will return (see page 49) These strictures also put off legitimate travellers When Canada lifted visa requirements for Czech citizens in 2007, the number of Czech tourists jumped by a third; when restrictions were reintroduced in 2009, after a rise in asylum applications, arrivals fell by 70% over three years Rather than gumming up all travel, it made more sense to process asylum claims faster The rules have subsequently been relaxed again Governments can take three steps to ease the burden of visas without simply throwing borders open to all-comers The first is to slash the length of their forms Britain, a grave offender when it comes to high fees and piles of paperwork, requires visa applicants to fill in a ten-page form, provide a list of every foreign trip over the past decade and declare that they have never incited terrorism to boot This is absurd Schengenarea bureaucrats in continental Europe manage to screen visitors in just two pages America’s visa-waiver programme allows citizens of 28 countries to visit by filling out a simple online form with basic personal information Second, government departments need to get better at sharing that information, both within borders and across them Most big receiving countries now demand biometric data such as fingerprints and retinal scans Many also require “advance passenger information” before a traveller is allowed to board an aeroplane Cross-checking these data against intelligence and criminal databases will usually obviate the need for lengthy inquisitions La visa loca Usually, but not always Countries will want to investigate some applicants in greater detail So the third step is to grant longer visas to those people who have easily cleared the necessary hurdles America routinely grants ten-year visas; Europe routinely grants ten-day ones That means travellers to the Schengen area must repeatedly prove their good intentions, leading to more otiose paperwork, and fewer visits Necessary as they are, visas need not be so evil Republican tax plans Be serious The Republican candidates’ tax plans are welcome for their detail, but not their contents A MONTH before the first primary contest in Iowa, the Republican race is more warlike than wonkish Yet the candidates have found time to write sometimes intricate plans to reform America’s taxes (see page 17) Though no one blueprint will become law, if America chooses a Republican president, he may well have a Republican Congress to work with At that point, the winner’s tax plan will seem less like a campaign gimmick and more like a promise to be kept Republicans are right to seek to reform America’s incoher- ent, tangled-up tax system America’s corporate tax is a toxic combination of a high rate—the highest in the OECD—and a series of complex distortions, which encourage bad behaviour such as gorging on debt and stashing cash in foreign subsidiaries Republicans rightly want to cut the rate and put an end to most of the distortions Marco Rubio and Jeb Bush would also let businesses deduct the cost of their investments from their taxes immediately, rather than as their assets deteriorate and lose value This would encourage investment and boost economic growth The candidates have interesting ideas for helping low earners, too Mr Bush and Donald Trump want to raise the standard deduction (the amount Americans can earn before paying in- The Economist January 2nd 2016 come tax) That would be a simple way to encourage work and to help low- and middle-income households: a similar policy has proved a success in Britain Mr Bush would also double the earned-income tax credit, a wage top-up for low-earners, for childless workers Mr Rubio wants to replace the standard deduction with a universal payment to those in work, which would help even those who earn too little to benefit from an increased tax allowance These ideas, though, are mere footnotes to the plans’ central chapters: huge tax cuts for high earners At 39.6%, America’s top federal income-tax rate is hardly high by global standards Yet the candidates are racing to see who can promise to cut it most Mr Bush aims for 28%; Mr Trump 25% Ted Cruz wants to replace income tax entirely with a 10% flat tax and a value-added tax Mr Rubio, whose promise of a 35% top rate seems timid by comparison, serves up largesse elsewhere by promising to abolish levies on capital gains and dividends The first problem with these schemes is their cost On today’s growth forecasts, even Mr Bush’s relatively moderate plan would reduce revenues by $715 billion, or 13.5%, a year by 2026—more than the projected national defence budget Paying for Mr Trump’s plan with reduced day-to-day spending (as opposed to mandatory spending on things like pensions and health care) would require cutting budgets by a staggering 82% The candidates claim that tax cuts will spur the economy, filling the government’s coffers with new revenue But the pace of any economic acceleration is uncertain The evidence Leaders that income-tax cuts for high earners boost growth is thin at best Predictions that tax cuts in the early 2000s would cause enough growth to pay for themselves look foolish today This is no time to be taking chances with America’s budget Retiring baby-boomers are increasing the cost of providing pensions and health care for the old There is no appetite among Republicans for defence cuts, and other day-to-day spending has already been cut by 22% in real terms since 2010 If tax cuts were paid for with more borrowing rather than lower spending, they would end up as deadweight for the economy rather than as fuel The plans would also greatly exacerbate inequality, which has increased in the 15 years since George W Bush cut taxes for high earners Under Mr Trump’s plan, for instance, the top 1% ofearners would receive a windfall worth 18% oftheir after-tax income Middle-earners have to settle for a 5% boost; the bottom fifth, just1% This belies Mr Trump’s claim to champion the cause of ordinary working people The other plans are little better; Mr Rubio’s plan is probably more generous at the bottom than at the top, but he gives middle-income Americans little to cheer about The Republicans have spent much ofBarackObama’s presidency denouncing debt and deficits Yet their proposals to introduce unaffordable tax cuts for the rich would send both ballooning So long as such schemes are a prerequisite for winning the Republican nomination, a party that prides itself on economic management will lack a credible policy Global inflation Low and behold Another year of low prices will create strains in the world economy E CONOMISTS don’t forecast because they know, said J.K $ per barrel Galbraith; they forecast because 120 they’re asked A question that is 80 increasingly put to them is 40 whether inflation, which has been remarkably quiescent for 2014 2015 years, will spring a surprise in 2016 After all, the debt troubles that have weighed down rich economies since 2007 are fading; labour markets in America, Britain and Germany are increasingly tight; housing markets are gathering steam; and the Federal Reserve has just raised interest rates for the first time in almost a decade Inflation in America and Europe should indeed pick up from its present, near-zero state as the big declines in energy prices at the turn of 2015 drop out of the headline rate But a glut in the supply of crude means that oil prices are falling again If debt is receding as a problem in rich countries, it looms larger in emerging markets, where overcapacity brought on by bingeborrowing exerts a downward force on prices There is inflation in commodity-exporting countries, such as Brazil, whose currencies have been trashed But global inflation is a tug-ofwar between bottlenecks in parts of the rich world and imported deflation from emerging markets, and the enduring fall or stagnation of prices looks set to dominate for a while yet (see page 53) Indeed, this “lowflation” means that three aspects of the world economy are worth watching in 2016 Brent crude oil Start with Saudi Arabia The falling price of crude is in part a consequence of its commitment (reiterated by OPEC ministers on December 4th) to produce at full tilt The idea is to flush out the weaker producers in America’s shale-oil industry and elsewhere This is proving a costly gambit Saudi Arabia needs a barrel of oil to fetch around $85 to finance public spending and around $60 to keep its current account in balance Yet the oil price recently fell below $36, to an 11-year low, before rebounding a little America has sustained oil production of above 9m barrels a day, despite a sharp fall in the number of oil rigs, suggesting that shale firms are becoming more efficient This week Saudi Arabia said that it would cut local subsidies on petrol, electricity and water in order to chip away at a budget deficit that reached 367 billion riyals ($98 billion), or15% of GDP, in 2015 The Saudis are burning through their (ample) foreign-exchange reserves to pay for imports while maintaining the riyal’s peg with the dollar But the cost of this strategy has already forced two other oil exporters, Kazakhstan and, more recently, Azerbaijan, to abandon their dollar pegs The public finances of other big oil producers, such as Russia and Nigeria, are also under pressure No wonder a devaluation of the riyal this year is a favoured tail-riskfor currency forecasters A second place to watch is China A construction boom has left it with a mountain of debt and excess capacity in some industries—notably steel, whose falling global price has claimed jobs in Europe’s industry and led to growing complaints of Chinese dumping Factory-gate prices have fallen in China for 10 Leaders The Economist January 2nd 2016 45 consecutive months Further fiscal and monetary stimulus should help to boost demand, but will also hinder the management of China’s exchange rate, which is already under pressure from an outflow of capital As with the riyal, the yuan has just about kept pace with the dollar’s ascent over the past two years, leaving it looking expensive Beijing has signalled that it wants to benchmark the yuan against a basket of currencies, and some forecasters expect a gradual decline in its value against the dollar in 2016 But there is an understandable fear that the yuan may slip anchor, potentially touching off a round of devaluations in Asia A third outcome from continued lowflation will be increasingly lopsided economies in the rich world, particularly in America, where recovery is more advanced than in Europe If productivity stays as weak as it has been recently, unemployment is likely to fall still further At the same time, slow growth in emerging markets is likely to keep downward pressure on commodity prices and on their currencies A strong dollar has already driven a wedge between the performance of America’s manufacturing and service industries Further appreciation would make it harder for the Federal Reserve to push through more increases in interest rates Strong on jobs, weak on prices All this would make for a strangely configured economy by the end of the year An unemployment rate of 4%, a Fed Funds rate below 1%, an overvalued dollar, a strong housing market and inflation below the Fed’s target of 2% is a plausible, if very odd, mix, which could portend either a sudden burst of inflation or enduringly feeble demand (see page 58) An honest economist will admit the uncertainties in any forecast But another year of lowflation will surely tax policymakers Internet security When back doors backfire Some spy agencies favour “back doors” in encryption software, but who will use them? W ITHOUT encryption, internet traffic might as well be written on postcards So governments, bankers and retailers encipher their messages, as terrorists and criminals For spy agencies, cracking methods of encryption is therefore a priority Using computational brute force is costly and slow, because making codes is far easier than breaking them One alternative is to force companies to help the authorities crack their customers’ encryption, the thrust of a new law just passed in China and a power that Western spy agencies also covet Another option is to open “back doors”: flaws in software or hardware which make it possible to guess or steal the encryption keys Such back doors can be the result of programming mistakes, built by design (with the co-operation ofthe encryption provider) or created through unauthorised tinkering with software—or some combination of the three The problem with back doors is that, though they make life easier for spooks, they also make the internet less secure for everyone else Recent revelations involving Juniper, an American maker of networking hardware and software, vividly demonstrate how Juniper disclosed in December that a back door, dating to 2012, let anyone with knowledge of it read traffic encrypted by its “virtual private network” software, which is used by companies and government agencies worldwide to connect different offices via the public internet It is unclear who is responsible, but the flaw may have arisen when one intelligence agency installed a back door which was then secretly modified by another The back door involved a faulty random-number generator in an encryption standard championed by America’s National Security Agency (NSA); other clues point to Chinese or British intelligence agencies Decrypting messages that involve one or more intelligence targets is clearly within a spy agency’s remit And there are good reasons why governments should be able to snoop, in the interests of national security and within legal limits The danger is that back doors introduced for snooping may also end up being used for nefarious ends by rogue spooks, enemy governments, or malefactors who wish to spy on the law-abiding It is unclear who installed Juniper’s back door or used it and to what end Intelligence agencies argue that back doors can be kept secret and are sufficiently complex that their unauthorised use is unlikely But an outsider may stumble across a weakness or steal details of it America, in particular, has a lamentable record when it comes to storing secrets safely In the summer it became known that the Office of Personnel Management, which stores the sensitive personal data ofmore than 20m federal employees and others, had been breached—allegedly by the Chinese Some call that the biggest disaster in American intelligence history It is rivalled only by the data taken by Edward Snowden, a former NSA contractor now living in Moscow (The authorities responsible for airport security also let slip the details of master keys that can open most commercially available luggage—a form of physical back door.) Push back against back doors Calls for the mandatory inclusion of back doors should therefore be resisted Their potential use by criminals weakens overall internet security, on which billions of people rely for banking and payments Their existence also undermines confidence in technology companies and makes it hard for Western governments to criticise authoritarian regimes for interfering with the internet And their imposition would be futile in any case: high-powered encryption software, with no back doors, is available free online to anyone who wants it Rather than weakening everyone’s encryption by exploiting back doors, spies should use other means The attacks in Paris in November succeeded not because terrorists used computer wizardry, but because information about their activities was not shared When necessary, the NSA and other agencies can usually worm their way into suspects’ computers or phones That is harder and slower than using a universal back door—but it is safer for everyone else 58 Finance and economics The Economist January 2nd 2016 Free exchange Exit, pursued by bear The Fed has at last raised rates What happens next? I T IS more than two weeks since the Federal Reserve raised interest rates for the first time in over nine years, and the world has not (yet) ended But it is too soon to celebrate Several central banks have tried to lift rates in recent years after long spells near zero, only to be forced to reverse course and cut them again (see chart) The outcome of America’s rate rise, whatever it may be, will help economists understand why zero exerts such a powerful gravitational pull Recessions strike when too many people wish to save and too few to spend Central banks try to escape the doldrums by slashing interest rates, encouraging people to loosen their grip on their money It is hard to lower rates much below zero, however, since people and businesses would begin to swap bank deposits for cash or other assets So during a really nasty shock, economists agree, rates cannot go low enough to revive demand There is significant disagreement, however, on why economies become stuck in this quagmire for long periods There are three main explanations The Fed maintains that the problem stems from central-bank paralysis, either self-induced or politically imposed That prevents the use of unconventional monetary policies such as quantitative easing—the printing of money to buy bonds The intention of QE is to buy enough long-dated debt to lower long-term borrowing rates, thereby getting around the interest-rate floor Once QE has generated a speedy enough recovery, senior officials at the Fed argue, there is no reason not to raise rates as in normal times If the Fed is right, 2016 will be a rosy year for the American economy The central bank expects growth to accelerate and unemployment to keep falling even as it lifts rates to 1.5% or so by the end of the year Yet markets reckon that is wildly optimistic, and that rates will remain below 1% That is where the other two explanations come in The first is the “liquidity trap”, an idea which dates back to the 1930s and was dusted off when Japan sank into deflation in the late 1990s Its proponents argue that central banks are very nearly helpless once rates drop to zero Not even QE is much use, since banks are not short of money to lend, but of sound borrowers to lend to Advocates of this theory see only two routes out of the trap The government can soak up excess savings by borrowing heavily itself and then spending to boost demand Or the central bank can promise to tolerate much higher inflation when, in the dis- Oh no you don’t! Interest rates following the first increase from near-zero levels, % 2.0 Sweden (June 2010) 1.5 Euro zone (March 2011) 1.0 Canada (May 2010) 0.5 Japan (June 2006) Japan (July 2000) Denmark (March 2011) 12 24 36 + 48 60 72 84 Months since rate increase Sources: Central banks; Chicago Mercantile Exchange 96 – 108 120 0.5 tant future, the economy returns to health The promise of higherthan-normal inflation in future, if believed, reduces the real, or inflation-adjusted, interest rate in the present, since money used to repay loans will be worth less than the money borrowed Expectations of higher future inflation therefore provide the stuck economy with the sub-zero interest rates needed to escape the rut Governments pursued both these policies in the 1930s to escape the Depression But when they reversed course prematurely, as America’s did in 1937, the economy suffered a nasty and immediate relapse The liquidity-trap explanation suggests the Fed’s rate rise was ill-advised The American economy, after all, is far from perky: it is growing much more slowly than the pre-crisis trend; inflation is barely above zero; and expectations of inflation are close to their lowest levels of the recovery If this view is correct, the Fed will be forced by tumbling growth and inflation to reverse course in short order, or face a new recession Stuck in a glut There is a third version of events, however This narrative, which counts Larry Summers, a former treasury secretary, among its main proponents, suggests that the problem is a global glut ofsavings relative to attractive investment options This glut of capital has steadily and relentlessly pushed real interest rates around the world towards zero The savings-investment mismatch has several causes Dampened expectations for long-run growth, thanks to everything from ageing to reductions in capital spending enabled by new technology, are squeezing investment At the same time soaring inequality, which concentrates income in the hands of people who tend to save, along with a hunger for safe assets in a world of massive and volatile capital flows, boosts saving The result is a shortfall in global demand that sucks ever more of the world economy into the zero-rate trap Economies with the biggest piles of savings relative to investment—such as China and the euro area—export their excess capital abroad, and as a consequence run large current-account surpluses Those surpluses drain demand from healthier economies, as consumers’ spending is redirected abroad Low rates reduce central banks’ capacity to offset this drag, and the long-run nature of the problem means that promises to let inflation run wild in the future are less credible than ever This trap is an especially difficult one to escape Fixing the global imbalance between savings and investment requires broad action right across the world economy: increased immigration to countries with ageing populations, dramatic reforms to stagnant economies and heavy borrowing by creditworthy governments Short of that, the only options are sticking plasters, such as currency depreciation, which alleviates the domestic problem while worsening the pressure on other countries, or capital controls designed to restore monetary independence by keeping the tides of global capital at bay If this story is the right one, the outcome of the Fed’s first rises will seem unremarkable Growth will weaken slightly and inflation will linger near zero, forcing the Fed to abandon plans for higher rates Yet the implications for the global economy will be grave In the absence of radical, co-ordinated stimulus or restrictions on the free flow of capital, ever more of the world will be drawn, indefinitely, into the zero-rate trap Economist.com/blogs/freeexchange Science and technology The Economist January 2nd 2016 59 Also in this section 60 The future of the Nobel prize 61 Weird weather For daily analysis and debate on science and technology, visit Economist.com/science Aircraft engines Flying’s new gear A quieter, more economical jet engine, fitted with a gearbox, is about to arrive E VERYONE remembers the Wright brothers, who made the first powered, heavier-than-air flights by human beings on a beach in North Carolina in 1903 Few, by contrast, remember Charlie Taylor, a mechanic at the brothers’ bicycle business in Dayton, Ohio Yet it was Taylor who, by building an internal-combustion engine out of aluminium castings rather than iron ones, created a device both light enough and powerful enough to lift Orville and Wilbur into the sky Engine design has always been crucial to aviation To start with, more powerful versions of the piston-driven motor pioneered by Taylor ruled the roost Then, a radical, new approach emerged as the designs of Frank Whittle, a British engineer, ushered in the jet age The jet has since evolved into the turbofan, whose gaping intakes have—as seasoned air travellers will have noticed—grown larger and larger over the years, to accommodate ever bigger and better fans And now, as 2015 turns into 2016, another new design is being rolled out This is the geared turbofan, which is available as an option on the A320neo, the latest product of Airbus, Europe’s biggest aerospace group Geared turbofans, as their name suggests, include a gearbox as part of the mechanism Those on the A320neo are the brainchildren of engineers at Pratt & Whitney, a division of United Technologies, an American conglomerate Designing and building geared turbofans, which Pratt & Whitney brands “PurePower”, is a gamble The firm has spent two decades and more than $10 billion developing them Connecting an engine’s inlet fan to the compressor and turbine in its core through a gearbox should give better fuel economy and make the thing quieter—both desirable outcomes But the bigger the engine the bigger the forces on the gearbox and the more likely it is that something will go wrong So, though gearboxes are found in turboprops (jet engines that turn a propeller) and in a few executive jets, no one had until now managed to scale one up to cope with the 30,000 horsepower delivered by the core of an airliner’s engine Pratt & Whitney has persevered because it thinks the conventional, ungeared turbofan is reaching its limits, and that only by adding a gearbox can airlines achieve the performance and economy which will be required of them in the future Airlines, though, are notoriously conservative, and are wary of new, complicated kit like gearboxes, which are yet one more thing that can go wrong So Pratt & Whitney has had its work cut out to persuade them Meshing it together A jet engine works according to Newton’s third law of motion: to every action there is an equal and opposite reaction The reaction is forward movement The action which provokes that is the ejection from the back of the jet of fast-moving gas This gas generates thrust in proportion to its mass and to the speed with which it is being ejected In the early, ear-splitting jet engines designed by Whittle and his contemporaries, the thrust came from air that entered the engine’s core at the front (see diagram overleaf) where it was squeezed by a compressor, mixed with fuel and ignited to produce hot gases that rushed out of the rear Though the mass of this exhaust gas was small, its velocity was high, so the resulting thrust kept an aircraft fitted with such an engine aloft The compressor, meanwhile, was turned by a turbine propelled by the exhaust gases A turbofan works in a broadly similar way, but with a fan also turned by the turbine to push some of the air around, rather than through, the core Though this corebypassing air is not moving as fast as the exhaust gases, there is a lot of it—so it, too, produces a great deal of thrust The upshot is a system that is more efficient and quieter than earlier jet engines The proportion of air going around the core compared with that going through it is known as the bypass ratio Some of the latest turbofans have bypass ratios as high as 9:1 It is to achieve this that fans (and therefore inlets) have increased in size But as fan blades get longer, their tips travel faster— and now those tips are going at close to the speed of sound Accelerating them any further would cause shock waves, and these might result in dangerous vibrations A gearbox gets around this by letting the fan turn more slowly than the compressor and the turbine This means the fan can be made bigger (and can thus accelerate a greater volume of air) without slowing everything else down to its rev rate This arrangement permits all parts to be engineered for optimal performance As a result, PurePower has a bypass ratio of 12:1 60 Science and technology The Economist January 2nd 2016 Three jet ages Combustion chamber Compressor TURBOJET In early jets incoming air was directed to the compressor and ignited with fuel to create thrust and drive a turbine Turbine AIRFLOW THRUST Compressor Fan Combustion chamber Turbine TURBOFAN A fan is used to drive a proportion of the air more slowly around the core of the engine, to provide thrust more efficiently AIRFLOW THRUST Fan Gearbox Compressor Combustion Turbine chamber GEARED TURBOFAN A gearbox allows a bigger fan to rotate more slowly than the rest of the engine, to push an even larger volume of air around the jet’s core AIRFLOW Doing all of this does, though, require an utterly reliable gear box Pratt & Whitney uses advanced nickel-based alloys for the components of the box itself The fan blades are made from a lightweight alloy of aluminium and lithium And the turbine is composed of titanium aluminide, a substance developed in collaboration with MTU, a German firm, that has twice the strength of the conventional cast alloys used to make turbines The upshot is that a pair of PurePower engines slung under an A320neo’s wings promise to reduce fuel consumption by15% compared with a standard A320 This could save an airline more than $1.5m a year per aircraft in fuel costs Geared turbofans also give the plane a longer range and are markedly less noisy There have, inevitably, been teething problems Industry reports suggest that the geared turbofan needs a slightly longer period to cool down than was expected, to avoid uneven wear when it is restarted This might sound trivial, but at a busy airport it could cost a plane its take-off slot For that reason Qatar Airways, which had been expected to be the first to take delivery of the A320neo, is believed to have postponed receipt The honour of being first now looks like going to Lufthansa, a German carrier Pratt & Whitney says the geared turbofan meets or exceeds all its performance requirements During routine flight testing, ways to improve the engine were identified, but the company adds that any modifications will be minor Whether geared turbofans will sweep all before them remains to be seen—and depends, at least in part, on the response of THRUST Pratt & Whitney’s two big rivals in the jetengine business, General Electric (another American firm) and Rolls-Royce (a British one) These companies are also working on more efficient aircraft engines Both, though, think improvements can still be squeezed from the conventional turbofan design without resorting to a gearbox General Electric, in partnership with Snecma, a French firm, is offering a rival engine, called the CFM Leap, for the A320neo This will be available later in 2016 and is claimed by the partners to provide fuel savings similar to those of a geared arrangement The Leap is a conventional turbofan, but it is made using some unconventional techniques These include new composite materials and also additive manufacturing (popularly known as 3D printing) RollsRoyce, too, aims to get greater efficiency from its turbofan designs, though it does also have a gearbox-development programme, with a view to making a geared turbofan that might enter service on large passenger aircraft in around a decade’s time As to PurePower itself, so far the opinion of airlines is divided Airbus has taken orders for more than 4,400 A320neos About a third of these will sport PurePower, a third Leap, and in the cases of the remaining third, the customer has yet to make up his mind Pratt & Whitney, though, does not plan to be tied only to Airbus It is also offering versions of PurePower to firms trying to break the duopoly enjoyed on short-to-medium-range aircraft by that firm and Boeing Bombardier of Canada is one such Its competitor to the A320 is called the CSeries The Mitsubishi Regional Jet, from Japan, is another plane which Pratt & Whitney hopes might use PurePower And there are also the MC-21, a 180-seat airliner from Irkut, a Russian aerospace company better known for its Sukhoi fighter jets, and the EJet from Embraer, of Brazil Whether Pratt & Whitney’s PurePower play will pay off remains to be seen, but as Charlie Taylor knew over 100 years ago, gearing up for success does mean taking risks The future of the Nobel prize Throw caution to the wind? Stockholm For everything to stay the same, everything may need to change F EW events exceed the splendour of the Nobel ceremony and gala dinner held every December in Stockholm After champagne toasts to Sweden’s king, and to the memory of Alfred Nobel, 1,300 guests sitting in the city hall cheer the latest crop of laureates in chemistry, physics, physiology or medicine, literature and economics (The peace prize is awarded at a separate shindig, in Oslo.) For many of the winners, perhaps more used to sporting white coats than white ties, the occasion is a career-defining moment of glamour No other prize has anything like the stature of a Nobel In scientific circles it is known simply as “the trip to Stockholm” But some whisper the question, “for how much longer?” Nobel, who made his money by inventing dynamite, set things off with a bang In 1895 he bequeathed 31m kronor (roughly $200m at today’s values) to create a foundation, the income from which would pay for the prizes The endowment is now worth billion kronor (some $500m) That sounds like a lot, but it hardly represents a spectacular return after120 years As a result, the prizes have suffered Today, an individual award—which can be split up to three ways—is worth 8m kronor in addition to the 18-carat gold medal each recipient receives A handy sum, but one whose lavishness has fallen as cautious investing has failed to increase the pot as fast as economic growth has increased peo- The Economist January 2nd 2016 Science and technology 61 ple’s incomes According to the founda- tion’s boss, Lars Heikensten, who was once governor of Sweden’s central bank, when the first prizes were awarded, in 1901, they represented 25 times the annual salary of a professor at a typical university in Europe or America Now, the ratio is more like ten Meanwhile rivals, such as the Kavli and Breakthrough prizes, are being endowed by more recent plutocrats Many of these (see chart) pay out more than the Nobel Foundation—in the case of the Breakthrough prize, three times as much The Nobel brand may thus be in danger of erosion, as the foundation itself admits in its most recent annual report This says that “ensuring the importance of the Nobel prize in the long term continues to pose a significant challenge” Mr Heikensten is trying to take matters in hand He has overseen a big awarenessraising push on social media, and through conferences and debates that carry the Nobel name And, sometime in the next 12 months, work will start on a Nobel visitor centre and conference venue in the heart of old Stockholm This controversial cube of glass, costing 1.2 billion kronor, will be paid for by private donors, with much of the money coming from two families of Swedish billionaires, the Wallenbergs and the Perssons Which is all well and good, but does not really get to the heart of the matter—that the whole Nobel proposition needs dragging into the 21st century One ticklish question is whether the prize categories are still relevant The science prizes—the core of the foundation’s fame—reflect the academic priorities of the founder’s era Things have changed Galling though it is to the memory of Nobel, a chemist, pure chemistry is largely worked out as an academic discipline These days, most of the winners of the chemistry prize could have fitted just as easily into the physics or physiology-or-medicine categories Meanwhile, biology has hypertrophied Shoe-horning it into “physiology or medicine” seems bizarre, and excludes important fields such as ecology Rivals have prizes for categories such as neuroscience and nanoscience Changing Prize fight Prize money, 2015 or latest, $m Breakthrough prize Queen Elizabeth prize for engineering Tang prize Kavli prize Nobel prize Blavatnik national award for young scientists Source: Award organisations or adding to the Nobel list, though, has not found favour Even the economics prize, introduced in 1969, is looked down on by traditionalists as not being a proper Nobel Then there is the question of replenishing the coffers A praiseworthy desire to preserve independence by not taking donations into the endowment has become something of a drawback This, as much as overcautious investing, is responsible for the prizes’ diminished financial value A more welcoming attitude to donations (even if these are restricted to the personal, rather than the corporate, and perhaps to legacies rather than lifetime gifts that might be seen as involving some quid pro quo) might be sensible, to boost the prizes’ value For reputation is a funny thing Scandal can destroy it overnight, of course, and the foundation’s trustees might fairly argue that their cautious approach has avoided that fate But reputation can also slip away, unnoticed, as the world’s attention shifts elsewhere Meteorology Barmy weather The rain gods have brought a dreadful Christmas T HE year 2015 was probably the hottest since meteorological records began It certainly ended with a flourish On North America’s east coast, dreams of a white Christmas were banished by springlike temperatures In New York, for instance, the mercury hit 22°C (72°F) on Christmas Eve Europe, too, enjoyed unseasonal warmth But this was no festive gift, for the warm, moist air that caused it also brought humungous storms In South America flooding has forced 130,000 Paraguayans from their homes In the United States tornadoes before and after Christmas have killed at least 29 people Thirteen more have drowned in floods caused by a storm that this week tracked across the Atlantic (see map), where it may add to the misery of people in large parts of northern England, who have already been inundated several times this year, the Christmas period included (see page 44) As The Economist went to press, forecasters were warning that this storm, dubbed Frank by British meteorologists, may develop into what is known as a bomb cyclone, undergoing a sudden, drastic drop in air pressure at its centre in a way that will suck warm air from the tropics and funnel it northward If these predictions prove correct, the temperature at the North Pole is likely to rise a little above freezing Though that is still chilly by most people’s standards, it is an extraordinary 30°C above the average for this sunless time of year One explanation for the weird weather, at least in the Americas, is El Niño—a phenomenon in which a slackening of trade winds over the Pacific allows warm water to slosh back eastward, increasing the amount of heat and moisture in the atmosphere in a way that has various predictable effects across the tropics The floods in South America are part of a typical Niño pattern, and the tornadoes in the United States tend to fit, too Storm chasing Approximate location of storm centre* December 2015 dates, 12:00 GMT UNITED STATES 23 North Pole 30 25 24 Previous route Forecast 27 New York 29 UNITED KINGDOM A T L A N T I C O C E A N PARAGUAY Source: Windyty *Area of low atmospheric ure originating in southern United States, Christmas 2015 Another factor is that the polar vortex, which traps cold air in the Arctic, has taken a form which permits balmier than normal weather in much of the northern high latitudes This week’s bomb cyclone may change that, though Bits of Europe could be in for a cold new year Climate change is a contributor too The greenhouse effect warms the oceans as well as the atmosphere, and they have stored up quite a lot of heat in recent years The oceans are therefore unusually warm—not just the eastern Pacific, but the Indian and Atlantic, too Kevin Trenberth of the National Centre for Atmospheric Research, in Boulder, Colorado, points out that a lack of hurricanes—which most people would welcome—may explain some of the effects around the Atlantic at the moment as heat normally released by summer hurricanes stayed in the ocean As ever, connecting weather patterns across the seasons and across the globe is difficult But learning how to so is becoming ever more important 62 Books and arts The Economist January 2nd 2016 Also in this section 63 Kennedy’s forgotten crisis 64 Ukraine’s war-torn history 65 Non-Western classical music 65 New film: “The Revenant” For daily analysis and debate on books, arts and culture, visit Economist.com/culture The Great War at midpoint A most terrible year Two long battles of attrition engulfed the European powers in 1916, a year crammed both with horrors and with consequences, many of which still endure B OOKS that focus on what happened in a particular year have become a publishing phenomenon So Keith Jeffery, a British academic historian whose last work was a fascinating, if slightly plodding, official history ofBritain’s secret intelligence service, MI6, must have thought it a clever idea to go for 1916, the midpoint of the first world war Mr Jeffery’s purpose is to show that not only was it a year of tremendous events, but one in which the effects of the war spread across most of the world, often with consequences that can still be felt a century later By 1916, the war that some had believed would be over by Christmas 1914 had become an attritional slog on both the largely static Western Front and on the rather more fluctuating front in the East To break the deadlock, the general staffs of all the main belligerents continued to work on new tactics, such as the creeping artillery barrage, and to seek new technologies, including the tank, which first saw action in September 1916 Contrary to a widely held view, the second half of the war was a period of unprecedented military innovation The idea that sheer offensive élan could overcome well-entrenched defences equipped with modern weaponry, in the form ofaccurate artillery and the machinegun, had died during the appalling bloodletting of late 1914 In the four months before the war of movement in the West ground to a halt, France and Germany had between them suffered over 1.5m casualties—a loss rate that was not exceeded until manoeuvre returned to the battlefield in the final months of fighting By1916 most of the soldiers on both sides had not only lost faith in imminent victory, but had become fatalistically resigned to the war as permanent crucible for their generation which civilians and politicians at home could not begin to comprehend The last hope that the war might be brought to a swift conclusion by a stroke of strategic brilliance had faded with the abject failure of the Gallipoli campaign to deal the expected blow to the Ottoman Empire Just a few days before the close of 1915, the Allied forces withdrew stealthily from the beaches at Suvla Bay and “Anzac” Cove (the acronym for the Australian and New Zealand Army Corps, which fought there with great gallantry, but, contrary to national myths, did not suffer the bulk of the casualties) The withdrawal, in contrast to the rest of the shambolic campaign, was rather brilliantly conducted But the lesson was still a painful one: although “sideshows” continued to exercise the imagination of those with an imperialistic mindset, the grim reality for Britain and France was that the war would be won or lost on the Western Front That realisation fed into something else By1916 sentiment had hardened into a widespread feeling on both sides that the sacrifices had already been so great that the possibility of a negotiated peace had ceased to be politically conceivable The only way forward, it seemed, was to prevail in a fight to the finish whatever the cost That was one reason why 1916 saw two of the most terrible confrontations of the war: the battle of Verdun, which began in February, and the battle of the Somme, which was launched on July 1st During the whole of 1915 there were 1.8m casualties on the Western Front; in just eight months of 1916, thanks to those two epic struggles, France, Britain and Germany together sustained 2.2m casualties For the German chief of staff, Erich von Falkenhayn, the fortress at Verdun was chosen as the place where “the forces of France will bleed to death” Verdun, writes Mr Jeffery in “1916: A Global History” (Bloomsbury, $32 and £25) “became a byword for the manifest horrors of industrialised, ‘total’ war” But for France, the defence of Verdun in the face of Germany’s greatest onslaught of the war so far became the ultimate symbol of national heroism For the British, the battle of the Somme came to represent something less noble At the outset, the British army suffered its greatest-ever loss in a single day (more than 57,000 casualties) The shock of July 1st 1916 came to stand for not just the suffering and courage of the soldiers, but, later, anger over the human cost of flawed tactics and supposedly callous military leadership Yet at the time the battle, which continued until November, was not regarded as a disaster The French made significant gains during September, which, William Philpott, author of “Bloody Victory” (2009), believes was the “tipping point” of the war He argues that the Somme “relieved the pressure on Verdun, restored the initiative The Economist January 2nd 2016 of the Allies, wore down the enemy’s man- power and morale and…stretched German resources dangerously thin” With their superior manpower and resources, the Allies believed the Somme was “a strategic victory in a war of attrition” which they would eventually win Paradoxically, the great naval battle of Jutland, two months before the Somme offensive, looked at best like a costly draw for the Royal Navy, which lost more ships and men than Germany’s High Seas Fleet, but was in fact a strategic success Although, as Mr Jeffery points out, contrary to myth, it was not the last time the High Seas Fleet ventured out of Wilhelmshaven, the damage done to its smaller naval force at Jutland underlined the risks of seeking a definitive engagement As a result, there was no further real threat to Britain’s naval blockade of Germany which, according to German apologists for their eventual military defeat, led to deteriorating conditions on the home front (malnutrition and sickness if not actual starvation) and the myth of the “stab in the back” by treacherous republican politicians A further consequence of Jutland was that with waning appetite for another major fleet action and its attendant risks, German U-boats went back to a largely commerce-raiding role It was the fateful decision early in 1917 to expand into unrestricted warfare that led directly to America’s entry into the war a few months later, in April A thread thus leads from Jutland to the single event that perhaps did most to ensure that Germany would lose the war The attritional struggles on both the main fronts were directly connected to the wider impact of the war as the fragile regimes of three of the belligerents, AustriaHungary, Russia and the Ottoman Empire, began to crack under the strain AustriaHungary, whose attempt to chastise rebellious Serbia fuelled the initial descent into war, was by 1916 buckling at the seams Neglecting the struggle against Russia in the East, Austria-Hungary’s chief of the general staff, Franz Conrad von Hötzendorf, had sent his best troops to fight the Italians, but had still got bogged down Things turned from bad to worse when the Russian general Aleksei Brusilov launched a brilliantly conceived offensive in June The Russian advance put intolerable pressure on the fragile loyalties of the multi-ethnic Habsburg armies There were mass defections of Czech, Ukrainian, Croat and Slovenian units who were deeply reluctant to fight fellow Slavs Brusilov eventually ran out of steam when German divisions arrived to stiffen Correction: In a piece on historical agony aunts in our Christmas issue ("Whatever should I do?"), we described a British bigamist as having been transported to Australia before Captain Cook "discovered" the place The two-timer may well have been shipped to another colony, such as America Thanks to an alert reader for spotting this Books and arts 63 Habsburg resistance But his offensive proved to be another major turning point Austria-Hungary was more or less destroyed as a military power, increasingly dependent on Germany to stay in the fight Less obviously, exhausted by the inconclusive effort of its greatest feat of arms in the war, the Russian army turned in on itself, creating the conditions for the revolution the next year that was hijacked by Lenin with help from Germany The battles on the Eastern Front in 1916 “crucially accelerated the political and social destabilisation of both the Russian and Habsburg empires”, as Mr Jeffery notes Nearly all the areas where the fighting took place were in the colonised spaces of eastern Europe: that is to say, in places where “the population felt itself under the domination of a foreign power” The war encouraged people to challenge the imperial status quo and assert their right to national self-determination, still a relatively new concept and one that has remained a source of conflict and controversy With every major belligerent by 1916 in extremis, it was not just in eastern Europe and the Balkans that nationalist movements surfaced to exploit the distraction of the colonial power Ireland saw the Easter Rising when 1,400 armed republicans seized a number of Dublin landmarks, including the GPO building, only surrendering when British artillery was used to shell their positions The subsequent execution of 15 of the rebels and the imposition of martial law increased opposition to Ireland’s role in the war and gave a boost the republican cause that led to the establishment of the Irish Free State six years later In the Middle East, the British and French pursued a policy offomenting Arab nationalism as a means of undermining the Ottoman Empire and staving off German attempts to promote a pan-Islamist jihad against the two older colonial powers In May 1916 two rather obscure diplomats, Franỗois Georges-Picot and Sir Mark Sykes, reached an agreement that divided Arab Ottoman provinces into areas of future British and French control or influence The baleful results of their insouciant mapdrawing are still being felt today, notably in the turmoil of Syria and Iraq That 1916 was an extraordinary year is not in doubt It was the pivotal year of the Great War, which as Fritz Stern, a GermanAmerican historian, rightly observed, was “the first calamity of the 20th century, the calamity from which all other calamities sprang” The intensity and scale of the fighting was the trigger for a wave of political, economic and social upheavals that destroyed empires and forged national identities, sometimes for the better, very often for the worse Historians have been hard at work teasing out the threads; readers can expect a deluge of new books in the coming months China and India Clash of the titans JFK’s Forgotten Crisis: Tibet, the CIA and the Sino-Indian War By Bruce Riedel Brookings Institution Press; 256 pages; $29 I N THE autumn of1962 Chinese troops invaded Indian-held territory, attacking across the 1,800-mile (2,880km) border that stretches along the Himalayas between the two giants of Asia Mao Zedong instructed his army to expel Indian soldiers from territory that China claimed in Kashmir In Washington the Chinese offensive was seen as a serious communist move in the cold war It was an inconvenient moment for the White House President John Kennedy was absorbed in an even bigger crisis with communism closer to home: the flow of Soviet missiles to Cuba which threatened a nuclear conflict Luckily for Kennedy, he had his own man in New Delhi His friend from Harvard, John Kenneth Galbraith, was the American ambassador So in a relatively easy act of delegation, Galbraith was put in charge of the “other” crisis Galbraith proved up to the task, in part, as Bruce Riedel writes in “JFK’s Forgotten Crisis”, because he had access to the president and his aides Most ambassadors report to the State Department, but the blunt Galbraith told the president that going through those channels was “like trying to fornicate through a mattress” The border war did not last long The Chinese crushed the Indians Mao de- Kennedy and Nehru step out 64 Books and arts clared a unilateral ceasefire a month later and withdrew Chinese forces He had prevailed over his Asian rival, humiliating the Indian prime minister, Jawaharlal Nehru But victory was not just about Chinese might At Galbraith’s urging, the Americans had quickly backed the distressed Nehru An emergency airlift of supplies was sent to Calcutta and a carrier battle group was dispatched to the Bay of Bengal In the end, Mao judged that the Americans might actually come to the help of India He did not want to suffer huge losses of Chinese soldiers so soon after the Korean war Thus American deterrence worked, and a confrontation between America and China was avoided, Mr Riedel writes The actual war is just one facet of this high-wire story of the geopolitics of the period, with its outsized characters and decisions that still reverberate today Mr Riedel puts his experience as a former CIA analyst and a senior adviser on the National Security Council to canny use, uncovering details about an American covert operation in Tibet that has been mostly forgotten, though not by China Between 1957 and the early 1970s America spirited young Tibetans out of their homeland through Bangladesh (then East Pakistan), trained them in Colorado, and parachuted them back into Tibet, where they fought the Chinese army Galbraith described the covert effort as “a particularly insane enterprise” But the CIA prevailed In 1961 the Americans were so starved for information about China that the CIA bragged about the ambush of a Chinese army truck by the Tibetan rebels Mr Riedel describes how a bloodstained satchel of Chinese documents from the truck was taken to the White House as prized bounty The Americans were so ignorant about the early years of communist China, he writes, that the operation was deemed worth the risk because of the documents’ descriptions of the status of SinoSoviet relations, and the grim conditions in the Chinese countryside The current alliances on the subcontinent and the unsettling arms race between Pakistan and India hark back to the war of 1962 Kennedy’s decision to help India drew Pakistan closer to China India started down its path to becoming a nuclear power after its defeat by China When India tested a nuclear weapon in 1998, the rationale was the threat from China Today China and India are competitors, not enemies But more than 50 years after the war, the border dispute remains unresolved The two countries account for more than a third of the world’s population In July 2014 at the first meeting between the Chinese leader, Xi Jinping, and Narendra Modi, India’s prime minister, Mr Xi said: “When India and China meet, the whole world watches.” This superb history shows why The Economist January 2nd 2016 Ukraine’s war-torn history Keeping hope alive The Gates of Europe: A History of Ukraine By Serhii Plokhy Basic Books; 395 pages; $29.99 Allen Lane; £25 R OWS over inheritances are bitter—within families and between countries At the heart of the conflict between Russia and Ukraine is the contested legacy of a long-forgotten superpower: Kievan Rus Both Vladimir Putin’s Russia and postSoviet Ukraine lay claim to the mantle of Vladimir the Great, a prince who just over 1,000 years ago accepted Christian baptism for his unruly tribes of Slavs and Vikings To patriotic Russians, that was the founding action of their statehood For Ukrainians, the story is the other way round: their country, so often wiped off the map by its neighbours, is the true descendant That dispute underlies today’s smouldering war Many Russians find it hard to accept that Ukraine is really a state; moreover, Ukrainians (especially if they speak Russian as a first language) are essentially Russians The territory they inhabit is therefore part of Moscow’s patrimony Ukraine’s identity and its enemies over the past ten centuries are the central threads of Serhii Plokhy’s admirable new history He eschews polemic—almost to a fault, given the horrors he describes The subject material could seem dauntingly dense: few readers will be familiar with the twists and turns of the history, and unfamiliar names and places abound But Mr Plokhy—a Harvard historian whose previous book, “The Last Empire”, was a notable account of the Soviet Union’s downfall—treads a careful path The story is not just of high politics, gruesome and enthralling though that is Even when Ukraine did not exist as a state, Remembering the revolution he writes, “language, folklore, literature and, last but not least, history became building blocks of a modern national identity” He pays particular attention to the linguistic complexities Ukrainians may speak Russian yet also identify profoundly with the Ukrainian state The real linguistic divide is with Polish: western Ukraine was for many decades under Polish rule Memories of massacres and oppression are recent and vivid, making the reconciliation between those two countries all the more remarkable The epilogue to “The Gates of Europe” rightly describes the Ukraine crisis as central to Russia and Europe as a whole It is widely known that the Ukrainian national anthem begins: “Ukraine has not yet perished” Mr Plokhy points out that the Polish one begins in similarly mordant style The question for Ukrainians—and for Europe—is whether the country can summon up the determination that Poland has shown to tread the hard road which history has set before it The stakes are high: a successful, stable Ukraine would be a strong candidate to join and strengthen the European Union It would also be a devastating refutation of the Putin regime’s contention that bellicose autocracy is the best way of running a large ex-Soviet Slavic country But the odds are uncomfortably long Ukraine returned to statehood in 1991 shorn of its elites, thanks to famine, repression and Russification The creeps and cronies who have so signally misruled the country since then have acquired great riches, and put down deep roots Two democratic upheavals—the Orange revolution that began in late 2004 and the Maidan protests of 2013—have failed to dislodge this parasitic ruling class Yet belief in Ukraine’s history of tolerance and legality, rooted in European Christian civilisation, keeps hope alive In his elegant and careful exposition of Ukraine’s past, Mr Plokhy has also provided some signposts to the future The Economist January 2nd 2016 Books and arts 65 New film Bearing down “The Revenant” comes so close to being an action classic Why does it fail? W Non-Western classical music Voyages of discovery The Other Classical Musics: Fifteen Great Traditions Edited by Michael Church Boydell Press; 426 pages; £25 A NY self-respecting arts-lover living in America or Europe is familiar with a smattering of writers, painters and sculptors from outside the West But few cultural buffs could name a single composer from, say, China or Turkey, let alone give any detail about them A collection ofessays, entitled “The Other Classical Musics”, shows how much they are missing Intelligently edited by Michael Church, a British critic, the book looks at the canons of different parts of the world (India and China are deemed worthy of two chapters each, though Latin America is ignored) Written by different scholars, each chapter has a common structure, with a concise outline of the instruments, the style and the social relations behind the music Lots of beautiful pictures and extracts of musical notation break up the text The chapters on Indian classical music will be of particular interest to many readers, who may already have a vague understanding of it through the works of Ravi Shankar, a sitar-player (pictured) The book shows important differences between north (Hindustani) and south (Carnatic) Indian styles For instance, tablas—drums with heads usually fashioned from goat skin—are more commonly used in Hindustani music; Carnatic melodies tend to contain more flourishes (Shankar played largely Hindustani music.) Such characterisations are helpful for the lay reader; but the contributors also show a keen eye for historical nuance Many of them question the usefulness of the term “classical”, arguing that what people may now perceive to be traditional has in fact constantly changed over time In the HEN one online reviewer misinterpreted a key sequence in “The Revenant”, Alejandro Iñárritu’s harrowing wilderness-survival drama acquired a nickname: “The Bear Rape Movie” It is important to clarify, then, that Leonardo DiCaprio’s character, a shaggy-bearded 19th-century frontiersman called Hugh Glass, is not raped by a bear, although ursine sexual assault is just about the only ordeal he is spared At the start of the film, Mr Iñárritu’s first since his Oscar-winning Broadway farce, “Birdman”, Glass is a member of a fur-trading party that is ambushed by Arikara natives The ensuing forest battle has the nerve-shredding immediacy of the D-Day set piece in “Saving Private Ryan” (1998), Steven Spielberg’s secondworld-war drama Shortly afterwards, Glass is bitten, clawed, trodden on and flung around (but not raped) by a hulking grizzly, and then left for dead by a treacherous colleague (Tom Hardy) But he forces himself to trek for hundreds of miles to his associates’ fort, via frozen landscapes as hostile and beautifully strange as the surface of an alien planet Mr DiCaprio has said that his notoriously gruelling experiences on the set of “Titanic” nearly 20 years ago were a breeze compared with making “The Revenant” on location in Canada and Argentina But his tribulations have paid off Like Mr Hardy’s recent hit, “Mad Max: Fury Road”, “The Revenant” is a thunderous riposte to those blockbusters in which digitally rendered cities are flattened, but the violence never registers as chapter on classical Japanese music there is a wonderful illustration of two sheets of musical notation, one from 1303 and the other from the present day; their different styles hint at how the form has evolved Classical Iranian music has likewise seen much change During the 1950s it fell under the sway of European musical practices, but as the government grew concerned about Westernisation it sponsored efforts to reassert a Persian flavour As for India, before the 20th century the country’s music was no more than “a variety of musical traditions performed in different places by different social groups” Some historians argue that Indian “classical” music was really a cobbling together of different traditions by 20th-century nationalists Alongside other chapters on places like Tajikistan, north Africa and Java, the book has one on European classical music For anything other than what it is: the reorganising of pixels on a computer screen Watching Mr Iñárritu’s visceral film, the viewer feels Glass’s pain Every plunge into an icy river, every mouthful of twitching raw fish, every arrow through the throat seems excruciatingly real It is unfortunate, then, that the director has given in to his fatal weakness for distracting subplots and mystical hallucinations If Mr Iñárritu had not fallen for padding out his primal revenge yarn to an unnecessary 156 minutes, the overpowering scenes of Glass struggling against the bear, his human enemies and nature itself would have made “The Revenant” into a classic of the actionmovie genre Dealing with the wildlife many readers this chapter will be rather familiar; but for those who know little about composers like Pérotin (who was born in Paris and active in the late 12th century, when he came to be known as Pérotin the Great) or John Dunstable (c.1390-1453), a celebrated English composer of polyphonic music, it will be just as interesting as the others And in fewer than 30 pages it offers as good a summary of the Western canon as can be found anywhere Readers should not try and digest the whole book in one go; far better to use it for reference Indeed, the best way to appreciate it is to read it while listening to the music under discussion (your reviewer searched for the relevant compositions on YouTube and played the extracts of notation on the piano) There is a treasure trove of underappreciated music out there; this book will convince many to explore it 66 Property Rome (42 Romagna Street and 153 Sardegna Street) The property is located within the historic center of Rome, 300 m directly south of the Villa Borghese gardens The property benefits from its close proximity to both Roma Termini (Rome’s main railway station) as well as the “METRO A” underground line It is arranged in ground floor level, five upper floors, basement and attic and provides a gross floor area of c 1,600 m² The property operated as a hotel until 2007 For further inquiries: Cushman & Wakefield LLP (Via Vittorio Veneto, 54/B, Roma, 00187, Italy) Carlo Vanini, e-mail: carlo.vanini@eur.cushwake.com Tel +39 06 420079 45 Sara Pesino, email: sara.pesino@eur.cushwake.com F: +39 06 42007950 Ljubljana (17 Veselova Street) Pretoria (Stanza Bopape 1008) The property is a listed building situated in a prime residential area, protected by cultural heritage regulations The surrounding area accommodates a number of embassies (of U.S.A and Austria), government buildings, many retail stores, as well as the famous Tivoli Park It is a two-storey building with basement and attic with a total built area of 1215 m² and two independent parking lots of 20 m² and 15 m² respectively The property is located in Hatfield area, at the most central Avenue of Pretoria, in Stanza Bopape 1008, and in short distance from the Union Building The building complex includes a two-storey building with a total built area of 350 m² and an auxiliary self-contained building of total built area 50 m² The surface of the plot is 1,766 m² For further inquiries: Coreside Savills (115v Boulevard Mihajla Pupina, 11 000 Belgrade, Serbia) Srdjan Vujicic, e-mail: srdjan.vujicic@coreside.rs Tel +381 11 301 0000 For further inquiries: KLC Law Firm (2 Ypsilantou Str., Athens 10675, Greece Tel +30 210 7264500) Nikos Pittas, e-mail: nikos_pittas@klclawfirm.com and/or Eleana Pastra, e-mail: eleana_pastra@klclawfirm.com Appointments What is the future of transport? Electrified or powered by crops? If you want to help answer these questions, this is the job for you Clean Energy Director Transport & Environment (T&E), Europe’s leading NGO campaigning for sustainable transport, is looking for a director of its clean energy programme to help guide the continent to the cleanest energy sources for powering transport T&E is not a hierarchical organisation; we require an entrepreneurial spirit with a strong sense of autonomy We are an equal opportunity employer and committed to having a diverse workforce Deadline 7am CET, 18 January 2016 See transportenvironment.org/jobs To advertise within the classified section, contact: United Kingdom Martin Cheng - Tel: (44-20) 7576 8408 martincheng@economist.com United States Rich Whiting - Tel: (212) 641-9846 richwhiting@economist.com Europe Sandra Huot - Tel: (33) 153 9366 14 sandrahuot@economist.com Middle East & Africa Philip Wrigley - Tel: (44-20) 7576 8091 philipwrigley@economist.com Asia ShanShan Teo - Tel: (+65) 6428 2673 shanshanteo@economist.com The Economist January 2nd 2016 Tenders The Economist January 2nd 2016 67 68 Economic and financial indicators The Economist January 2nd 2016 Economic data % change on year ago Gross domestic product latest qtr* 2015† United States China Japan Britain Canada Euro area Austria Belgium France Germany Greece Italy Netherlands Spain Czech Republic Denmark Norway Poland Russia Sweden Switzerland Turkey Australia Hong Kong India Indonesia Malaysia Pakistan Philippines Singapore South Korea Taiwan Thailand Argentina Brazil Chile Colombia Mexico Venezuela Egypt Israel Saudi Arabia South Africa +2.1 Q3 +2.0 +7.4 +6.9 Q3 +1.6 Q3 +1.0 +1.8 +2.1 Q3 +2.3 +1.2 Q3 +1.2 +1.6 Q3 +1.9 +1.0 Q3 +0.9 +1.3 Q3 +1.0 +1.1 Q3 +1.3 +1.7 Q3 -3.5 -0.9 Q3 +0.8 +0.8 Q3 +0.6 +1.9 Q3 +3.2 +3.4 Q3 +2.2 +3.9 Q3 -1.8 +0.6 Q3 +7.3 +3.0 Q3 +3.6 +3.5 Q3 na -4.1 Q3 +3.4 +3.9 Q3 -0.1 +0.8 Q3 na +4.0 Q3 +3.8 +2.5 Q3 +3.5 +2.3 Q3 +11.9 +7.4 Q3 na +4.7 Q3 na +4.7 Q3 +5.5 2015** na +4.5 +6.0 Q3 +1.9 +1.9 Q3 +5.3 +2.7 Q3 -1.2 -0.6 Q3 +4.0 +2.9 Q3 +2.0 +2.3 Q2 -6.7 -4.5 Q3 +1.8 +2.2 Q3 +5.1 +3.2 Q3 +3.0 +2.6 Q3 -2.3 Q3~ +10.0 na +4.5 Q2 +2.5 +2.4 Q3 +3.4 2015 na +0.7 +1.0 Q3 +2.4 +6.9 +0.6 +2.4 +1.1 +1.5 +0.8 +1.3 +1.1 +1.6 +0.5 +0.8 +1.9 +3.2 +3.4 +1.6 +0.7 +3.4 -3.8 +3.0 +0.9 +3.0 +2.3 +2.4 +7.3 +4.7 +5.4 +5.7 +6.4 +2.9 +2.5 +3.2 +3.4 +1.1 -3.1 +2.8 +3.3 +2.4 -4.5 +4.2 +3.3 +2.7 +1.4 Industrial production latest Current-account balance Consumer prices Unemployment latest 12 % of GDP latest 2015† rate, % months, $bn 2015† -1.2 Nov +0.5 Nov +6.2 Nov +1.5 Nov +1.6 Nov +0.3 Nov +1.7 Oct +0.1 Nov -4.0 Oct +1.4 Nov +1.9 Oct +0.2 Nov +1.5 Oct +0.6 Nov +0.7 Oct +1.5 Dec +3.6 Oct nil Nov +0.2 Oct +0.4 Nov -1.7 Oct -0.7 Nov +2.9 Oct +0.1 Nov +2.1 Oct +0.7 Nov -0.3 Oct -0.3 Nov +3.8 Oct +0.1 Nov +0.3 Oct +0.3 Nov -2.6 Oct +2.8 Nov +7.8 Nov -0.6 Nov -3.5 Nov +15.0 Nov +4.0 Oct +0.1 Nov -2.8 Q3 -1.4 Nov +14.7 Oct +8.1 Nov +1.9 Q3 +1.5 Q3 -1.9 Q3 +2.4 Nov +9.8 Oct +5.4 Nov +5.2 Oct +4.9 Nov +4.2 Oct +2.6 Nov +5.2 Oct +2.7 Nov -1.8 Oct +1.1 Nov -5.5 Nov -0.8 Nov -0.3 Nov +1.0 Nov -4.9 Nov +0.5 Nov +0.1 Nov -1.0 Nov -2.5 Oct — *** -11.3 Oct +10.5 Nov -0.6 Oct +3.9 Nov +1.3 Oct +6.4 Nov +0.5 Oct +2.2 Nov na na -3.0 Oct +11.1 Nov -5.3 Oct -0.9 Nov na +2.3 Nov -1.1 Oct +4.8 Nov +0.2 +1.5 +0.7 +0.1 +1.2 +0.1 +0.9 +0.6 +0.1 +0.2 -1.1 +0.2 +0.4 -0.6 +0.3 +0.5 +1.7 nil +15.2 nil -1.1 +7.6 +1.6 +3.1 +5.1 +6.3 +2.5 +3.9 +2.4 +0.2 +0.7 +0.1 +0.8 — +9.3 +3.9 +4.2 +2.8 +84.1 +10.0 -0.2 +2.7 +4.7 5.0 Nov 4.1 Q3§ 3.3 Nov 5.2 Sep†† 7.1 Nov 10.7 Oct 5.6 Oct 8.7 Oct 10.8 Oct 6.3 Nov 24.6 Sep 11.5 Oct 8.3 Nov 21.6 Oct 5.9 Nov§ 4.5 Oct 4.6 Oct‡‡ 9.6 Nov§ 5.8 Nov§ 6.2 Nov§ 3.4 Nov 10.3 Sep§ 5.8 Nov 3.3 Nov‡‡ 4.9 2013 6.2 Q3§ 3.1 Oct§ 6.0 2014 5.6 Q4§ 2.0 Q3 3.1 Nov§ 3.8 Nov 0.9 Oct§ 5.9 Q3§ 7.5 Nov§ 6.3 Oct§‡‡ 8.2 Oct§ 4.1 Nov 6.6 May§ 12.8 Q3§ 5.4 Nov 5.7 2014 25.5 Q3§ -456.6 Q3 +275.9 Q3 +126.2 Oct -134.2 Q3 -54.1 Q3 +340.3 Oct +10.7 Q3 -5.8 Jun +0.2 Oct‡ +275.8 Oct -1.6 Oct +37.8 Oct +74.8 Q3 +19.1 Sep +2.0 Q3 +22.0 Oct +37.3 Q3 -2.4 Oct +64.3 Q3 +31.8 Q3 +84.1 Q3 -38.1 Oct -49.5 Q3 +9.3 Q3 -22.7 Q3 -18.4 Q3 +7.8 Q3 -1.3 Q3 +9.6 Sep +68.6 Q3 +105.6 Oct +77.2 Q3 +31.2 Q3 -8.3 Q2 -68.0 Nov -2.7 Q3 -20.8 Q3 -29.9 Q3 +7.4 Q3~ -12.2 Q2 +12.5 Q3 -1.5 Q2 -14.0 Q3 -2.5 +3.1 +2.6 -4.5 -3.2 +3.0 +1.7 +0.1 -0.3 +7.9 +2.5 +1.9 +10.6 +0.9 -0.1 +6.8 +9.3 -1.4 +4.7 +6.4 +8.1 -5.0 -4.1 +2.8 -1.2 -2.4 +2.5 -0.7 +4.1 +21.2 +7.3 +12.8 +2.4 -1.8 -3.8 -1.2 -6.7 -2.5 -1.8 -1.4 +4.9 -2.7 -4.3 Budget Interest balance rates, % % of GDP 10-year gov't 2015† bonds, latest -2.6 -2.7 -6.8 -4.4 -1.8 -2.1 -2.1 -2.6 -4.1 +0.7 -4.1 -2.9 -1.8 -4.4 -1.8 -2.9 +5.9 -1.5 -2.8 -1.2 +0.2 -1.6 -2.4 nil -3.8 -2.0 -4.0 -5.1 -1.9 -0.7 +0.3 -1.0 -2.0 -3.6 -6.0 -2.2 -2.1 -3.4 -16.5 -11.0 -2.8 -12.7 -3.8 2.24 2.67§§ 0.28 1.99 1.41 0.64 0.91 1.04 0.99 0.64 8.34 1.63 0.73 1.85 0.70 0.95 1.55 2.92 9.52 1.06 -0.07 10.72 2.75 1.55 7.76 8.81 4.22 9.00††† 4.10 2.45 2.06 1.03 2.48 na 16.41 4.64 8.28 6.27 10.98 na 2.08 na 9.56 Currency units, per $ Dec 29th year ago 6.49 120 0.68 1.38 0.92 0.92 0.92 0.92 0.92 0.92 0.92 0.92 0.92 24.8 6.84 8.73 3.88 72.1 8.39 0.99 2.91 1.37 7.75 66.4 13,745 4.29 105 47.1 1.41 1,170 32.8 36.1 12.9 3.87 709 3,148 17.2 6.31 7.83 3.90 3.75 15.3 6.22 121 0.64 1.16 0.82 0.82 0.82 0.82 0.82 0.82 0.82 0.82 0.82 22.8 6.11 7.45 3.53 57.2 7.83 0.99 2.32 1.23 7.76 63.7 12,447 3.50 101 44.7 1.32 1,098 31.8 33.0 8.55 2.69 606 2,381 14.7 6.29 7.15 3.91 3.76 11.6 Source: Haver Analytics *% change on previous quarter, annual rate †The Economist poll or Economist Intelligence Unit estimate/forecast §Not seasonally adjusted ‡New series ~2014 **Year ending June ††Latest months ‡‡3-month moving average §§5-year yield ***Official number not yet proven to be reliable; The State Street PriceStats Inflation Index, October 25.52%; year ago 41.05% †††Dollar-denominated The Economist January 2nd 2016 Markets % change on Dec 31st 2014 Index one in local in $ Dec 29th week currency terms United States (DJIA) 17,721.0 +1.7 -0.6 -0.6 China (SSEA) 3,730.4 -2.4 +10.1 +5.3 Japan (Nikkei 225) 18,982.2 +0.5 +8.8 +8.2 Britain (FTSE 100) 6,314.6 +3.8 -3.8 -8.8 Canada (S&P TSX) 13,245.8 +1.2 -9.5 -24.3 Euro area (FTSE Euro 100) 1,109.2 +3.2 +7.0 -3.6 Euro area (EURO STOXX 50) 3,314.3 +3.1 +5.3 -5.1 Austria (ATX) 2,396.3 +1.3 +10.9 nil Belgium (Bel 20) 3,753.1 +3.8 +14.2 +3.0 France (CAC 40) 4,701.4 +2.9 +10.0 -0.8 Germany (DAX)* 10,860.1 +3.5 +10.8 -0.2 Greece (Athex Comp) 617.6 -0.2 -25.3 -32.6 Italy (FTSE/MIB) 21,661.3 +2.9 +13.9 +2.7 Netherlands (AEX) 447.7 +3.9 +5.5 -4.9 Spain (Madrid SE) 978.1 +2.8 -6.2 -15.4 Czech Republic (PX) 955.7 +2.8 +1.0 -6.7 Denmark (OMXCB) 906.1 +3.4 +34.2 +20.7 Hungary (BUX) 23,964.5 +2.2 +44.1 +30.8 Norway (OSEAX) 648.4 +3.4 +4.6 -10.2 Poland (WIG) 47,042.2 +1.3 -8.5 -16.2 Russia (RTS, $ terms) 769.6 +0.9 +17.0 -2.7 Sweden (OMXS30) 1,453.0 +2.8 -0.8 -7.4 Switzerland (SMI) 8,883.0 +4.3 -1.1 -1.1 Turkey (BIST) 73,912.6 +1.1 -13.8 -30.7 Australia (All Ord.) 5,315.6 +2.9 -1.4 -11.9 Hong Kong (Hang Seng) 21,999.6 +0.8 -6.8 -6.7 India (BSE) 26,079.5 +1.9 -5.2 -9.9 Indonesia (JSX) 4,569.4 +1.1 -12.6 -21.2 Malaysia (KLSE) 1,685.4 +2.6 -4.3 -22.1 Pakistan (KSE) 32,811.9 +0.5 +2.1 -2.1 Singapore (STI) 2,888.2 +1.2 -14.2 -19.6 South Korea (KOSPI) 1,966.3 -1.3 +2.6 -3.5 Taiwan (TWI) 8,293.9 nil -10.9 -14.2 Thailand (SET) 1,283.8 +1.8 -14.3 -21.9 Argentina (MERV) 11,698.4 +2.3 +36.4 -10.6 Brazil (BVSP) 43,654.0 +0.4 -12.7 -40.0 Chile (IGPA) 18,078.8 +1.4 -4.2 -18.0 Colombia (IGBC) 8,529.7 +1.5 -26.7 -44.6 Mexico (IPC) 43,391.8 +0.1 +0.6 -13.9 Venezuela (IBC) 14,515.6 -0.8 +276 na Egypt (Case 30) 6,794.8 +0.4 -23.9 -30.5 Israel (TA-100) 1,321.0 +2.6 +2.5 +2.3 Saudi Arabia (Tadawul) 6,930.6 -1.7 -16.8 -16.8 50,964.4 +2.4 +2.4 -22.5 South Africa (JSE AS) Economic and financial indicators 69 GDP forecasts 2016, % change on a year earlier Worst – Best Libya Turkmenistan Venezuela Laos Equatorial Guinea Cambodia Syria Myanmar Macau India Brazil Bhutan Timor-Leste Ivory Coast Burundi Rwanda Trinidad Vietnam Greece Djibouti + Source: Economist Intelligence Unit The Economist commodity-price index Other markets Index Dec 29th United States (S&P 500) 2,078.4 United States (NAScomp) 5,107.9 China (SSEB, $ terms) 418.1 Japan (Topix) 1,543.4 Europe (FTSEurofirst 300) 1,453.1 World, dev'd (MSCI) 1,685.6 Emerging markets (MSCI) 799.7 World, all (MSCI) 404.6 World bonds (Citigroup) 870.5 EMBI+ (JPMorgan) 704.8 Hedge funds (HFRX) 1,173.1§ Volatility, US (VIX) 16.1 77.8 CDSs, Eur (iTRAXX)† 88.5 CDSs, N Am (CDX)† Carbon trading (EU ETS) € 8.3 % change on Dec 31st 2014 one in local in $ week currency terms +1.9 +0.9 +0.9 +2.1 +7.9 +7.9 -3.1 +50.3 +43.8 +0.6 +9.7 +9.1 +3.7 +6.2 -4.3 +2.1 -1.4 -1.4 +0.6 -16.4 -16.4 +2.0 -3.0 -3.0 -0.3 -3.5 -3.5 +0.5 +1.9 +1.9 +0.2 -3.7 -3.7 +16.6 +19.2 (levels) -4.9 +23.6 +11.4 -4.3 +33.8 +33.8 +0.5 +11.8 +0.8 Sources: Markit; Thomson Reuters *Total return index †Credit-default-swap spreads, basis points §Dec 28th Indicators for more countries and additional series, go to: Economist.com/indicators 2005=100 Dec 15th Dollar Index All Items 126.1 Food 148.5 Industrials All 102.8 Nfa† 108.9 Metals 100.2 Sterling Index All items 152.4 Euro Index All items 143.6 Gold $ per oz 1,061.4 West Texas Intermediate $ per barrel 37.3 Dec 22nd % change on one one month year 126.4 147.5 +0.8 -1.0 -18.0 -15.8 104.6 110.5 102.0 +3.5 +2.8 +3.8 -21.1 -12.1 -24.7 155.1 +2.5 -14.2 143.4 -2.2 -9.0 1,076.2 +0.1 -8.7 35.5 -14.3 -37.8 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Ewart; Thomson Reuters; Urner Barry; WSJ †Non-food agriculturals 70 Obituary Elsie Tu The Economist January 2nd 2016 khaki shorts in the narcotics trade Her relentless exposure of the police, in reports and letters to the South China Morning Post (her favourite, “restrained” modus operandi), became an all-out war, especially when after 1963 she sat on the Urban Council In 1966, when she campaigned against a fare rise on the Star Ferry linking Hong Kong island and Kowloon, the police accused her of inciting violence among the protesters; she proved them liars and became wildly popular, as well as later winning the CBE for her anti-corruption efforts To her backers she was invaluable, a British gadfly with pretty good Mandarin and passable Cantonese, who could intercede easily with those in power and could neither be silenced nor deported From missionary to firebrand Elsie Tu, campaigner for the people of Hong Kong, died on December 8th, aged 102 H AD you visited the squatter slums of Kai Tak in Kowloon, Hong Kong, in the 1950s, a curious sight might have met your eyes Among the thousands of tiny dilapidated wooden huts, crammed with refugees from newly communist China, threaded with muddy paths where adults clopped in wooden sandals and children splashed in storm-drains, a prim Englishwoman would be picking her way with care Her fair hair was brushed in an immaculate shape, her flowered dress suitable for Cheltenham; a large handbag was on her arm Her large eyes and prominent teeth gave her a look of keen concern Her name then was Elsie Elliott Later she was Elsie Tu Under both names she was a formidable advocate for the rights of the downtrodden in Hong Kong, shaming and tormenting the police, the Legislative Council and successive British governors for more than 30 years Wherever secondclass citizens—that is, Chinese—lacked transport, housing, education, fair wages or a voice, she would be there, on their side This transformation surprised even her She had arrived in the colony in 1951 as a meek missionary’s wife from the north of England, ready to support her husband, Bill Elliott, in the saving ofsouls The merry notes of her piano accordion rang out then over the huts of Kai Tak, inviting everyone to be washed in the blood of the Lamb Otherwise she made no noise, for women in the Plymouth Brethren were consigned to silence But gradually, surrounded by such privation, she grew restless Eventually she left both the Brethren and her husband Christian witness, to her, meant being “good and useful”, the motto she had adopted as a timid, studious schoolgirl It meant speaking out, too—even, as her pacifist father had hoped, getting into politics Hong Kong in those days had no social welfare It was run by British officials and rich businessmen for themselves alone The poor Chinese who wandered into her tiny church had boils from malnutrition and fungus-encrusted feet; she set up a clinic to treat them Children, desperate to learn, sat in the street devouring cheap comics; in 1954 she set up Mu Kuang Middle School, which grew from a 30-desk army tent, flapping in winds and summer downpours, to a seven-storey block with 1,300 pupils by 2015 Buying land and buildings, hurdling regulations and dealing with the Education Department introduced her to Hong Kong’s subculture of corruption, in which the ba wong, or triads, extorted protection money from every hutdweller and even from street hawkers; in which everyone expected backhanders; and where the police were up to their Love and politics The authorities themselves, in the governor’s office and on the Legislative Council (where she also sat, from 1988 to 1995), were less certain what to make of her She had no stated ideology, beyond “justice for the people”, but was scornful of the favours shown to Taiwanese and would not censure China In the run-up to the handover of the colony to China in 1997 she attacked the “disgraceful” reforms belatedly introduced by the British, and belittled the selfstyled democrats who attacked the Basic Law agreed on, with some input from her, with the Chinese In 1995 she lost her seat at the age of82 to a “pro-democracy” candidate whose hand she refused to shake Her motivations were in fact rather simple She hated colonialism, believing that it brought out the worst sort of arrogance in the British She championed the Chinese because, to her, they were its victims But she embraced them, too, because she fell in love with—and, in 1985, married—a Chinese patriot from Inner Mongolia, Tu Hsueh-kwei He had joined her church and co-founded her school; they had taught each other their respective languages She called him “Andrew” after the apostle who cared for the needy Through him she absorbed the philosophy and poetry of China, the songs ofthe Beijing Opera, the habit of patience and an enhanced sense of racial injustice In return he supported her in every way he could—except publicly, which might have meant deportation With him she experienced a strange reversal of her first role in Hong Kong Then, as a missionary wife, it was she who had been silent and second-class, reduced to making the refreshments at meetings Now it was Andrew who would greet her, after another rowdy day on the Legislative Council, with a cup of tea just as she liked it But then, reverting to the natural shyness she always felt she had, she would say “Thank you, husband,” and sip demurely, as if the order of things were not inverted; and as if she posed no threat to anyone Turn over a new leaf Then keep on turning Most New Year resolutions are forgotten within days A subscription to The Economist can enrich your thinking for life Get started with The Economist and enjoy 12 weeks for just $12 at economist.com/newyearoffer REDUCING TRAFFIC MOVING LIVES FORWARD Panama City’s growth has been fast, but success has made commutes slow To alleviate congestion, the Government of Panama made building a mass transit system a priority Citi, with a history in the country dating back to funding the Panama Canal, worked with government leaders to arrange financing for the Panama Metro project The end result: Better access to jobs and healthcare services, as well as reduced greenhouse gas emissions For over 200 years, Citi’s job has been to believe in people and help make their ideas a reality citi.com/progress © 2015 Citibank N.A Member FDIC Equal Opportunity Lender Citi and Citi with Arc Design are registered service marks of Citigroup Inc The World’s Citi is a service mark of Citigroup Inc ... recording or otherwise, without the prior permission of The Economist Newspaper Limited The Economist (ISSN 0013 -0613) is published every week, except for a year-end double issue, by The Economist. .. held at their address The guns stayed out even when the mistake became apparent The officers ran the details of the children’s father—who, like them, is black—through the police system on the off-chance... diplomatic thaw with the United States began in 2014 Many fear that the rapprochement will end The Economist January 2nd 2016 the United States’ policy of accepting émigrés from Cuba if they reach American