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Contents
On the cover
Women are gradually taking
over the workplace: leader,
page 7. Coping with this
quiet revolution will be one
of the great challenges in
coming years, pages 49-51.
Feminism and management
theory: Schumpeter, page 48
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Volume 394 Number 8663
First published in September 1843
to take part in "a severe contest between
intelligence, which presses forward, and
an unworthy, timid ignorance obstructing
our progress."
Editorial oces in London and also:
Bangkok, Beijing, Berlin, Brussels, Cairo,
Chicago, Delhi, Frankfurt, Hong Kong,
Jerusalem, Johannesburg, Los Angeles,
Mexico City, Moscow, New York, Paris,
San Francisco, São Paulo, Tokyo, Washington
5 The world this week
Leaders
7 Women and work
We did it!
8 Colombia’s presidential
non-campaign
Time to enter history
8 Iran in turmoil
The beginning of the end?
9 Climate change
Planet B
10 Japan’s two lost decades
An end to the Japanese
lesson
Letters
11 On carbon taxes,
public-sector workers,
Britain, violins
Brieng
17 Waziristan
The last frontier
United States
21 America, al-Qaeda and
home-made bombs
From shoes to soft drinks
to underpants
22 Housing and mobility
O the road
22 Asian carp advance on
Chicago
The invaders
23 Tourism in Hawaii
Hoping for an Obama
eect
23 The politics of rum
Sir Henry’s legacy
24 Health reform
The home stretch
Brieng
25 Emerging markets and
recession
Counting their blessings
The Americas
29 Álvaro Uribe’s Colombia
Not yet the promised land
30 Reforming Canada’s
Senate
Adapt or die
Asia
31 Harsh justice in China
Don’t mess with us
32 Taiwan and China
Trade talks
32 Hmong refugees in
Thailand
Shown the door
33 Sri Lanka’s displaced
Tamils
A market-based solution
33 Pakistan’s embattled
president
Zardari at bay
Middle East and Africa
34 Iran’s crackdown
Signs of desperation
35 Yemen’s multiple wars
A worry for the West
36 Ghana and its oil
Dangerously hopeful
36 East Africa’s common
market
It really may happen
Europe
37 Germany
Angela Merkel’s shaky
restart
38 Turkey and its generals
These cursed plots
38 The Balkans and the
European Union
Lightening gloom?
39 An autonomous
Vojvodina
Exit strategy
Britain
40 The election campaign
Under starter’s orders
41 The economy and the
election
The gures that will count
42 Extraditions to Poland
Wanted, for chicken
rustling
42 English libel law
Taking away the welcome
mat
The Economist January 2nd 2010 3
Waziristan The headquarters
of Islamist terror has repelled
outsiders for centuries. Now
the Pakistani government is
making a determined eort
to control the place, pages
17-20. Pakistan’s president
under pressure, page 33
Terror above Detroit The
attempted bombing of an
airliner highlights gaps in
intelligence-sharing and
airport security, page 21 .
The Yemen connection,
page 35
Iran A oundering regime may
have weakened itself with its
latest bloody crackdown:
leader, page 8. This bout of
increasingly erce repression
suggests that the mullahs
have begun to fear for their
future, page 34
1 Contents continues overleaf

4 Contents The Economist January 2nd 2010
Japan’s two lost decades The
country has taught the world a
great deal about coping with
the nancial crisis. Now the
West is on its own: leader,
page 10. Twenty years on,
Japan is still paying its
bubble-era bills, page 52
Climate change The
Copenhagen accord could yet
turn into a useful document:
leader, page 9. A draining
diplomatic marathon, page
43. Farms and forests, page
44. The response from
business, page 47. Better
sewage treatment is the latest
thing in clean energy, page 59
The imperial interventionist
Nicolas Sarkozy is reversing
the French state’s gradual
withdrawal from the world of
business, page 45
International
43 After Copenhagen
China’s thing about
numbers
44 Agriculture and climate
Farms and forests
Business
45 Government and business
in France
Dirigisme de rigueur
46 Pay-TV in emerging
markets
Finding El Dorado
46 Taser diversies its
arsenal
Proto-RoboCop
47 Clean technology after
Copenhagen
Waiting for a green light
47 KEPCO wins a nuclear
contract
Atomic dawn
48 Schumpeter
Why feminists do not make
good recruiters
Brieng
49 Women in the workforce
Female power
Finance and economics
52 Deation in Japan
To lose one decade may be
misfortune
53 Buttonwood
2010 previewed
54 Global house prices
Ratio rentals
55 Economics focus
Procrastination
Brieng
56 Mobile-phone culture
The Apparatgeist calls
Science and technology
59 Renewable energy
The seat of power
60 New sources of rubber
Blow out
60 Flood defences
Dambusterbusters
61 Genetics
Monogamouse
Books and arts
62 A history of objects
Creative impulses
63 The Berlin airlift
Magnicent men and
machines
64 Water
Through the aqueous
humour
64 Biography
Another eld
Obituary
65 Oral Roberts
Preacher of prosperity
69 Economic and nancial
indicators
Statistics on 42
economies, plus closer
looks at GDP growth
forecasts for 2010 and
mergers and acquisitions
The history of the world A new
radio series based around 100
objects at the British Museum
shows how the things people
made, even more than the
events they saw, can be
compelling witnesses to the
past, page 62
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Turmoil in Iran increased after
security forces red on antigovernment
demonstrators in
several cities. State television
said that eight people had
died, including a nephew of
last June’s thwarted presidential
candidate, Mir Hosein
Mousavi. More than a thousand
people were reportedly
arrested, including a former
foreign minister. Divisions in
the ruling clerical establishment
deepened.
Barack Obama ordered an
investigation into why America’s
security apparatus failed
to stop a man from boarding a
jet in Amsterdam, which he
then allegedly tried to blow up
as it made its nal approach to
Detroit on Christmas Day.
Umar Farouk Abdulmutallab
was overpowered by fellow
passengers after he attempted
to detonate explosives on the
plane, causing a re. An al-
Qaeda-aliated group in
Yemen claimed responsibility.
At least 38 people died in clashes
between the police and
members of a radical Islamist
sect called Kala Kato in
Nigeria’s north-eastern state
of Bauchi. The violence started
when police tried to enforce a
ban on open-air preaching.
The UN imposed sanctions on
Eritrea to punish it for backing
Islamist militias in Somalia.
Governments in the region,
along with the African Union,
have been demanding such
measures for several months.
A South Korean consortium
beat French, American and
Japanese rivals to win a coveted
$40 billion contract to build
and run four nuclear reactors
in the United Arab Emirates,
which will form part of the
rst civilian nuclear-energy
project in the Arab world.
Mr Obama and his fellow
Democrats were condent of
passing a signicant reform of
health care in early 2010 after
the Senate voted, along party
lines, in favour of a bill. Dierences
between legislation in
the Senate and the House need
to be thrashed out before the
president gets a bill to sign.
The share prices of Fannie
Mae and Freddie Mac soared
in response to the Treasury’s
recent decision to remove
limits on the amount of federal
aid to the companies. Fannie
and Freddie, America’s biggest
government-sponsored
enterprises, were bailed out
in 2008 amid huge mortgage
losses. The amount of public
money each could obtain was
capped at $200 billion (neither
has received that amount), but
the Treasury now wants to
leave no uncertainty about
its commitment to the rms.
In a setback for President
Álvaro Uribe’s security policy,
Colombia’s FARC guerrillas
kidnapped and killed the
governor of Caquetá department,
south-east of Bogotá.
Just hours after his funeral, the
mother and three other grieving
relatives of a soldier who
died during a government raid
that killed Arturo Beltrán
Leyva, one of Mexico’s top
drug-trackers, were murdered
in a revenge attack that
shocked Mexicans.
At a ceremony in Ushuaia in
Tierra del Fuego, two Argentine
men became the rst gay
people in Latin America to get
married. Meanwhile, Mexico
City’s legislature voted to
legalise gay marriage.
The candidate of the ruling
party was eliminated in the
rst round of Croatia’s presidential
election, suggesting
that voters are grumpy despite
more steps towards joining the
European Union. In mid-
December Serbia, Croatia’s
neighbour, formally applied to
join the EU.
In a sign of renewed tension
between the Turkish army
and the government, eight
special-forces soldiers were
briey arrested for allegedly
plotting to assassinate a senior
politician from the ruling
Justice and Development (AK)
party.
The Basel committee on
banking supervision, which
sets capital standards for banks
around the world, published a
consultation document on
December 17th that was more
stringent than many bankers
had expected. Among other
things, the committee is calling
for a shake-up in the way
banks’ capital is measured.
Liu Xiaobo, one of China’s
best-known political dissidents,
was sentenced to 11
years in prison for inciting
subversion. Mr Liu had been
instrumental in drafting a
petition in December 2008
known as Charter 08, calling
for radical political reform.
The Economist January 2nd 2010 5
Akmal Shaikh, a Briton
convicted of smuggling heroin
into China, was executed by
lethal injection in the northwestern
region of Xinjiang,
despite pleas for a review of
the man’s mental health.
Gordon Brown said he was
appalled.
More than 4,000 ethnic
Hmong refugees were repatriated
from Thailand to Laos,
despite fears that some of
them might face persecution.
More than 40 people were
killed in a suicide-bombing in
Karachi, Pakistan’s biggest
city, that targeted a procession
of Shia Muslims.
There were complaints as
India tightened rules for longterm
tourist visas, after the
arrest of a Pakistani American
who was accused of involvement
in planning the November
2008 attack on Mumbai.
He had travelled to India
several times.
The governor of the Indian
state of Andhra Pradesh, N.D.
Tiwari, resigned after a television
news channel aired pictures
purporting to show him
having sex in the company of
three women. Mr Tiwari is 84.
Other economic data and news
can be found on pages 69-70

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Leaders
We did it!
The rich world’s quiet revolution: women are gradually taking over the workplace
AT A time when the world is
short of causes for celebration,
here is a candidate: within
the next few months women
will cross the 50% threshold and
become the majority of the
American workforce. Women
already make up the majority of
university graduates in the OECD countries and the majority
of professional workers in several rich countries, including the
United States. Women run many of the world’s great companies,
from PepsiCo in America to Areva in France.
Women’s economic empowerment is arguably the biggest
social change of our times. Just a generation ago, women were
largely conned to repetitive, menial jobs. They were routinely
subjected to casual sexism and were expected to abandon
their careers when they married and had children. Today they
are running some of the organisations that once treated them
as second-class citizens. Millions of women have been given
more control over their own lives. And millions of brains have
been put to more productive use. Societies that try to resist this
trendmost notably the Arab countries, but also Japan and
some southern European countrieswill pay a heavy price in
the form of wasted talent and frustrated citizens.
This revolution has been achieved with only a modicum of
friction (see pages 49-51). Men have, by and large, welcomed
women’s invasion of the workplace. Yet even the most positive
changes can be incomplete or unsatisfactory. This particular
advance comes with two stings. The rst is that women are
still under-represented at the top of companies. Only 2% of the
bosses of America’s largest companies and 5% of their peers in
Britain are women. They are also paid signicantly less than
men on average. The second is that juggling work and childrearing
is dicult. Middle-class couples routinely complain
that they have too little time for their children. But the biggest
losers are poor childrenparticularly in places like America
and Britain that have combined high levels of female participation
in the labour force with a reluctance to spend public
money on child care.
Dealing with the juggle
These two problems are closely related. Many women feel
they have to choose between their children and their careers.
Women who prosper in high-pressure companies during their
20s drop out in dramatic numbers in their 30s and then nd it
almost impossible to regain their earlier momentum. Lessskilled
women are trapped in poorly paid jobs with hand-tomouth
child-care arrangements. Motherhood, not sexism, is
the issue: in America, childless women earn almost as much
as men, but mothers earn signicantly less. And those mothers’
relative poverty also disadvantages their children.
Demand for female brains is helping to alleviate some of
these problems. Even if some of the new theories about
warm-hearted women making inherently superior workers
are bunk (see Schumpeter, page 48), several trends favour the
more educated sex, including the war for talent and the
The Economist January 2nd 2010 7
growing exibility of the workplace. Law rms, consultancies
and banks are rethinking their up or out promotion systems
because they are losing so many able women. More than 90%
of companies in Germany and Sweden allow exible working.
And new technology is making it easier to redesign work
in all sorts of family-friendly ways.
Women have certainly performed better over the past decade
than men. In the European Union women have lled 6m
of the 8m new jobs created since 2000. In America three out of
four people thrown out of work since the mancession began
have been male. And the shift towards women is likely to continue:
by 2011 there will be 2.6m more female than male university
students in America.
The light hand of the state
All this argues, mostly, for letting the market do the work. That
has not stopped calls for hefty state intervention of the Scandinavian
sort. Norway has used threats of quotas to dramatic effect.
Some 40% of the legislators there are women. All the
Scandinavian countries provide plenty of state-nanced nurseries.
They have the highest levels of female employment in
the world and far fewer of the social problems that plague Britain
and America. Surely, comes the argument, there is a way to
speed up the revolutionand improve the tough lives of many
working women and their children?
If that means massive intervention, in the shape of armative-action
programmes and across-the-board benets for parents
of all sorts, the answer is no. To begin with, promoting
people on the basis of their sex is illiberal and unfair, and stigmatises
its beneciaries. And there are practical problems.
Lengthy periods of paid maternity leave can put rms o hiring
women, which helps explain why most Swedish women
work in the public sector and Sweden has a lower proportion
of women in management than America does.
But there are plenty of cheaper, subtler ways in which governments
can make life easier for women. Welfare states were
designed when most women stayed at home. They need to
change the way they operate. German schools, for instance,
close at midday. American schools shut down for two months
in the summer. These things can be changed without huge
cost. Some popular American charter schools now oer longer
school days and shorter summer holidays. And, without
going to Scandinavian lengths, America could invest more in
its children: it spends a lower share of its GDP on public childcare
than almost any other rich country, and is the only rich
country that refuses to provide mothers with paid maternity
leave. Barack Obama needs to measure up to his campaign
rhetoric about real family values.
Still, these nagging problems should not overshadow the
dramatic progress that women have made in recent decades.
During the second world war, when America’s menfolk were
o at the front, the government had to summon up the image
of Rosie the Riveter, with her exed muscle and We Can Do It
slogan, to encourage women into the workforce. Today women
are marching into the workplace in ever larger numbers
and taking a sledgehammer to the remaining glass ceilings. 7

8 Leaders The Economist January 2nd 2010
Colombia’s presidential non-campaign
Time to enter history
Álvaro Uribe should stand aside and let would-be successors campaign to lead Colombia
WITH a presidential election
due on May 30th, Colombians
should be plunging
into a debate about their troubled
country’s priorities for the
next four years. Instead, politics
is held hostage by a battle begun
by Álvaro Uribe, the president
since 2002, to change the constitution to allow him to run for a
third consecutive term. Later this month or early next the Constitutional
Court will rule on the validity of a law that would
clear Mr Uribe’s path. The court might reject it, over procedure,
or rule that Mr Uribe could stand only in 2014. If it upholds the
measure, this must then be approved in a referendum in which
at least a quarter of voters turn out, probably to be held in mid-
March. If, despite his great popularity, Mr Uribe were unable to
secure a high enough turnout, his would-be successors would
have only a few weeks to secure a popular mandate.
That is an indulgence Colombia cannot aord. Mr Uribe
has made his country a better and safer place. Through tireless
and determined leadership and by expanding the security
forces, backed by American aid, he has reduced the FARC
guerrillas from a mortal threat to the democratic state to a scattered,
if still dangerous, band. He persuaded tens of thousands
of right-wing paramilitaries to disband, albeit under a awed
agreement. Greater security has helped to bring a revival of
economic growth and national self-condence. That is why
polls suggest that if Mr Uribe ran, he would win.
Mr Uribe has indeed accomplished much. But for Colombia
to progress it needs strong institutions rather than an eternal
strongman. The ultimate success of Mr Uribe’s tough security
policies depends on them being continued by othersand
on being adjusted. FARC’s kidnap and murder of a provincial
governor in late December was a grisly throwback to the bad
Iran in turmoil
The beginning of the end?
NO ONE knows whether the
Iranian regime’s latest bout
of violent repression marks an
ill-judged step towards its own
much-merited demise or if it
will cow the dissenters into sullen
but long-lasting acquiescence.
But the violence marks a
change in the nature of the struggle that has been fought out
since last June’s tainted presidential election. The regime may
catch its breath before it embarks on another round of shooting
and clubbing. But the prospect that it is losing its grip, perhaps
even terminally, has now become a lot more credible.
old days of a decade ago. There are also new threats from criminal
gangs made up of recycled paramilitary types.
The next government faces other urgent issues (see page
29). Mr Uribe has failed to reform burdensome labour laws
that force younger Colombians into a vast informal economy.
His government has spent years talking about improving transport
links without doing so. Then there is the judiciary. It has
done a vital job of holding government allies and the army to
account for their paramilitary links and their human-rights
abuses respectively. But in other respects its combination of judicial
activism and legal paralysis is damaging. Mr Uribe, who
has clashed with judges and upset constitutional balances designed
for four-year presidencies, is the last man to be able to
reform the judiciary in good faith.
The risk of emulating Hugo Chávez
Many of the capable Colombians in business and academia
who once supported Mr Uribe now want change. His third administration
would have to sta itself from a shallow pool of
talent on the hard right. These backwoodsmen whisper in the
president’s ear that if he relinquishes oce he will be hauled
before the International Criminal Court. Yet there is no evidence
that Mr Uribe is a criminal.
Colombia has several other plausible candidates to choose
from who could build on Mr Uribe’s achievements. Other
hugely popular and respected democratic leaders in Latin
America, such as Brazil’s Luiz Inácio Lula da Silva and Chile’s
Michelle Bachelet, have refused to abolish term limits. By following
their example Mr Uribe might enter history as a democrat
who saved his country. Yet he seems bent on emulating
Hugo Chávez, the caudillo of Caracas. It is high time that Mr
Uribe let his country begin the stringent presidential debate it
so badly needs. He should pre-empt the court judgment, and
say now that he will not run this year. 7
A oundering regime may have weakened itself with its latest bloody crackdown. Let’s hope so
For one thing, the government has become readier to kill its
opponents. By its own initial count, 15 people were killed in demonstrations
on December 28th, the day of Ashura, one of the
holiest in the Shia Muslim calendar; one of the dead was a
nephew of Mir Hosein Mousavi, the main victim of the stolen
election in June (see page 34). For another thing, divisions
within the clerical establishment have become deeper. Inuential
clergymen no longer want their religion to be tarred by a
regime that would, among other things, punish mourners at
services for Grand Ayatollah Hosein Ali Montazeri, in religious
terms the most distinguished of the foes of the president, Mahmoud
Ahmadinejad, and of the country’s supreme leader,
Ayatollah Ali Khamenei.
1

The Economist January 2nd 2010 Leaders 9
2 It is understandable why so many clerics are nervous. The
opposition remains largely spontaneous and without a clear
leader, but its animus is now directed as much against the hitherto
untouchable Mr Khamenei as against his buoonish presidential
protégé. The regime’s assorted opponents are becoming
a lot readier to question the legitimacy of the entire system
of clerical rule that the thwarted candidates for the presidency
in June had wanted merely to improve.
The fate of Iran will be decided inside the country. Iranians
remain quick to resent foreigners’ meddling, real or imagined,
and the regime has eagerly sought to exploit such deep-seated
feelings. So Barack Obama was right, after the June election
when the protests were still young, to step cautiously into
Iran’s argument, in the hopeforlorn, as it turned outthat his
conciliatory hand might soften the regime towards both its
own people and its supposed adversaries abroad.
Last weekend, however, the protests came of age. It is hard
to gauge opinion in Iran, but one of the protesters’ wishes
seems to be better relations with the outside world. So Mr
Obama is right againalong with other Western leadersto
speak out forcefully in defence of the opposition. He cannot
keep his hand of friendship outstretched while Iran’s rulers,
with their own sts, are bashing so many innocent heads.
The nuclear conundrum is a separate matter. Iran’s turmoil
is making it a lot harder, if not impossible, for the country’s negotiators
to strike a deal, even if they wanted to. With the re-
Climate change
Planet B
How the underwhelming Copenhagen accord could yet turn into a useful document
Industrial CO 2 emissions
World, tonnes bn
Developing
30
20
Industrialised
10
0
1990 93 96 99 2002 05 08
FACED with the undoubted
grandeur of climate change,
a grand response seems in order.
But, to the immediate disappointment
to most of those participating
and watching, the
much anticipated UN climate
conference held in Copenhagen
in December led to no such thing.
Initial ambitions for a legally binding agreement with numerical
targets for big emitters had already been abandoned in
favour of a politically binding deal in which developed and
developing countries would commit themselves to numerical
targets to cut emissions. In the event a few countries produced
a short accord that sets down no specic limits for future
emissions beyond those that its signatories volunteer (see
page 43)and the commitments they have made so far do not
look tough enough to limit the rise in temperature to 2°C above
pre-industrial levels, the widely accepted boundary beyond
which scientists do not recommend going.
Hardly a grand response. Yet the Copenhagen accord is not
the disaster that it at rst appears. On two issues in particular
the Copenhagen conference may yet mark the beginning of a
new way forward.
First, the UN’s climate process has for more than a decade
been bedevilled by a binary split between developed and developing
countries. Under the Kyoto protocol, only developed
countries committed themselves to cutting emissions; devel-
gime divided, any conciliatory gesture is too easily painted as
weakness by one faction or another. The West has proposed a
deal whereby Iran would send uranium abroad for further enrichment
to feed some reactors for medical purposes in the
country, but the government is nigh-certain to miss the end-ofyear
deadline for progress. With Mr Khamenei’s very being
seeming to depend on hating and mistrusting America, that
has led to renewed murmurings about American military action
against Iran. That would be a mistake. Not only would a
strike be of uncertain military value, but it would also iname
the entire region; even those Iranians who detest the regime
might then rally to Mr Khamenei.
Why sanctions might help
So tougher economic sanctions seem sure to follow, with perhaps
even Russia and China giving the nod at the UN Security
Council. Some of Iran’s admirable dissidents, such as the exiled
winner of the Nobel peace prize, Shirin Ebadi, argue that
such sanctions would be mistaken, since they hurt the poor
hardest and might help consolidate the regime. Sanctions are
indeed a blunt and sometimes weak tool. But as Iran’s economy
ags, one of the starkest changes wrought by its increasingly
ugly regime is that Iranians are beginning to blame their
leaders more than foreigners for their woes. The tide may indeed
be turning against the supreme leader, his dreadful president
and even the cracking carapace of clerical tyranny. 7
oping countries made no such promises. That was the main
reason why Kyoto failed, because America would not accept a
treaty that required nothing of countries such as China, and
China insisted that the rich world should bear most of the necessary
costs of constraining emissions. At Copenhagen developed
countries were determined to move beyond this structure;
many developing countries to hang on to it. That was the
obstacle on which the conference foundered.
Yet the Copenhagen accord makes some progress towards
closing this split. Developing, as well as developed, countries
signed up to it, and have agreed to an international role in
monitoring any cuts they commit themselves to. That is a crucial
concession.
More than they can chew
The second reason for hope is that Copenhagen’s failure may
have encouraged the development of political structures better
suited to the challenge. Climate change is not just an unusually
grand problem. It is also an unusually complex one, which
crosses and confounds the boundaries that normally dene
our world; from farming to forestry, shipping to sovereignty, all
sorts of interests are brought together in new ways that demand
new actions. Trying to deal with all the sources of the
many gases involved in a single set of negotiations, in a forum
of 193 countries, was always a tall order.
The Copenhagen accord edges towards allowing negotiations
to take place in new forums. Some of its provisions, notably
on mechanisms for funding mitigation eorts in develop-1

10 Leaders The Economist January 2nd 2010
2 ing countries, can take eect outside the UN process. That
could mark a new pluralism in climate politics, allowing coalitions
of the willing to form for specic purposessuch as
slowing deforestation, or stemming emissions from shipping.
There are risks to slicing up the problem into smaller pieces.
Bundling everything together, so that all parties need to oer
some give in order to get their take, is a time-honoured format
for negotiations; and stepping back from doing everything in
one forum may mean doing less overall. But the world has
twice, at Kyoto and at Copenhagen, tried to deal with the problem
in one go, and failed. Smaller groups such as the G20 or
the Major Economies Forum oer a better prospect for haggling
over dicult issues. The UN process still has a role, in ensuring
a workable and trusted system of accounting for car-
Japan’s two lost decades
An end to the Japanese lesson
EW Year rally expected
Non Tokyo market next
week. That was a typically
boosterish Japanese newswire
headline on December 29th
1989, the day that one of the
world’s biggest ever asset-price
bubbles reached bursting point.
Exactly 20 years later the Japanese are still paying the price for
such hubris (see page 52). The Nikkei 225 index, which peaked
at 38,916, now languishes at just over one-quarter of that level
(though once again there is talk of a New Year rally). Japan’s
economy has barely grown in nominal terms after two lost
decades, and is again suering from deation. Where Japan
was once bearing down on America, it now feels the hot
breath of China on its neck. Remember Japan as Number
One? These days the country’s chief claim to fame is having a
gross government debt burden approaching 200% of GDP.
For the Japanese this has all been deeply troubling. But in
the past two years, as the Western world has faced many of the
same problems that Japan has been grappling with since 1989
(the collapse of asset prices, a surge in distressed debt and a
looming threat of deation), Japan has provided some useful
lessons on how governments should, and should not, tackle
potentially systemic nancial meltdowns.
Thanks to the precedent set by Japan, many of these lessons
were quickly put into practice. Acting far more swiftly than the
Japanese authorities did (the Japanese had the misfortune of
having to learn through trial and error), Western policymakers
provided liquidity to their banks and forced them to rebuild
capital, while pumping in generous doses of scal stimulus to
oset the collapse in private-sector demand. And like the Bank
of Japan, they slashed interest rates and took extraordinary
measures to try to keep credit owing. The ecacy of these
steps has led to growing optimism about the world economy.
So what is the Japanese lesson now? In many ways, the
analogy is no longer terribly helpful. That is partly because the
pupils are in a worse pickle than the teacher ever was. The
most vulnerable countries, such as Greece, now face a risk that
Japan never did: that markets will lose faith in their creditwor-
bon, and in debating and approving or rejecting agreements
whose details will largely be worked out elsewhere.
Many problems lie aheadand not just as a result of Copenhagen’s
failures. The main danger lies in the American
Senate, which at some point over the next few months will decide
whether to approve or reject legislation to set up a capand-trade
system to put a price on carbon. That will have more
impact than any international conference, including Copenhagen,
on the future levels of greenhouse-gas emissions. But
global negotiations will need to continueand the participants
need to learn one useful lesson from Copenhagen. Climate
change is too big a problem to be swallowed in a single
bite. Smaller groups, dealing with more manageable-sized
chunks, have a better chance. 7
Japan has taught the world a great deal about coping with the nancial crisis. Now the West is on its own
thiness. Japan, for all its woes, has beneted from a huge pool
of domestic savings and investors happier to keep their money
at home than abroad. Meanwhile, the scale of the global upheaval
makes Japan’s problems, which had little impact overseas
and took place against a backdrop of global growth, look
small by comparison. And with huge decits in so many nations,
the risk of a sudden loss of scal credibility is more acute
than it ever was in Japan.
But there are other ways in which the pupils are in better
shape. That is partly because they have less rigid systems. In
the more adaptable Western economies there has been less resistance
to structural changes in order to maintain productivity.
There are also usually fewer political barriers to dealing
with bad private-sector debts than there were in Japan. Moreover
Westerners are also reaping the rewards of having acted
more decisively than the Japanese didespecially when it
came to pumping money into the economy and cleaning up nancial
balance-sheets. With fewer zombie banks, fewer signs
of entrenched deation and much earlier signs of growth, the
West is in uncharted territory: it has arguably already got to a
stage that Japan never really did.
Nothing more will I teach you today
That makes it very dicult to keep on drawing particular lessons
from Japan’s sad plight. It does, however, still leave a general
lesson common to all economic disasters: don’t be suckered
by false signs of economic recovery. In Japan’s case, such
hopes have led it repeatedly to tighten scal policy before private
demand was strong enough to sustain a recovery. That entrenched
deation. Japan also left its banks too short of capital
to cope with subsequent shocks.
Policymakers in the developed world still have an enormous
task on their hands. Many banks have huge writedowns
to make on their loans, economies are burdened with
excess capacity and households’ debt levels remain high. It
would be disastrous to tighten policy too soon, as Japan’s example
shows. But Japan provides no useful guidance on when
the right time would be. For that, there is only trial and error.
And the more errors there are, the more the West’s next decade
may look like Japan’s two lost ones. 7

Letters
Carbon tax or trade?
SIR The Economist continues
to propagate the myth that a
carbon tax is preferable to
carbon trading (Stopping
climate change, December
5th). There are three good
reasons for not favouring a
carbon tax over a cap-andtrade
solution.
First, a one size ts all tax
requires an impossible calculation
of the average cost of
reducing emissions over a
given period of time. Compare
this with an emissions-trading
system that works on the
free-oating marginal cost of
abating emissions. Second,
carbon taxes would be levied
locally and so impossible to
properly administer on a
global scale. A global carbonmarket
price is perfectly pervasive.
And third, taxation cannot
guarantee a reduction in
greenhouse-gas emissions;
emitters could opt to pay the
tax and continue emitting at
will. Conversely, a cap-andtrade
solution introduces a
carbon ceiling and the price
acts as no more than a useful
barometer of how close we are
to achieving that goal; prices
will tend to zero as the requisite
level of emission reductions
is achieved.
The latter point dispels the
political myth that we need to
establish a carbon price. Why
does it matter if we achieve the
necessary quantity of emission
abatement at $2 per tonne
of CO2 or at $50 per tonne?
Our objective ought to be to
achieve the environmental
goal at the lowest unit cost.
This goal can only be accomplished
through the exibility
of emissions trading. The
carbon-tax argument is as
extinct as the dinosaurs.
James Emanuel
Commercial director
CantorCO2e
London
SIR You asserted that, economists
prefer carbon prices,
especially those set by taxes
rather than cap-and-trade
systems, which are more vulnerable
to capture by the
polluters. This implies that
someone has actually polled
economists on the question, or
counted pro and con arguments
in the environmentaleconomics
literature, or at least
made some eort to ascertain
what economists prefer. Those
assumptions would be wrong,
as there is still plenty of disagreement
on carbon pricing
versus cap and trade. Your
only argument for dismissing
cap and trade is its supposedly
greater vulnerability to capture.
That in itself is doubtful.
Consider an important, and
not doubtful, argument on the
other side. Finding the correct
price, or tax, on carbon
emissions requires huge
amounts of detailed knowledge
of the processes behind
the emissions and the marginal
costs faced by polluters. It is
not possible to appeal to trial
and error for establishing the
right price because of the lags
and the ineciencies implied
by the inevitable errors. The
great virtue of cap and trade is
that the system can be taken
directly to the targeted emission
reductions. The price that
arises out of the market, then,
is by denition the correct one.
Clifford Russell
Professor emeritus of economics
Vanderbilt University
Nashville, Tennessee
SIR You have published a
special report on climate
change (December 5th) that is
pivoted on the apparent acceptance
of projections based on
data that neither you nor I
have been allowed to see or
question openly. It is sad to see
the newspaper that I have held
in such high esteem blindly
prostitute itself to the warmistbrigade
consensus on alleged
man-made climate change. Be
brave like the small child who
saw and said that the emperor
was wearing no clothes.
Carl Thuey
Tunbridge Wells, Kent
SIR It is important to keep the
debate on climate change
alive, so both sides should be
grateful for each other. We
could learn a lesson from the
lm, 12 Angry Men. Henry
Fonda’s lone sceptic holds rm
against 11angry jurors to prevent
a possibly wrongful
conviction. He does this by
focusing on the evidence and
not making personal attacks.
Each side of the debate on
global warming would do well
to consider how they measure
up to this standard.
Benjamin de Foy
Assistant professor
Department of earth and
atmospheric sciences
Saint Louis University
St Louis, Missouri
Valued workers
SIR That you regard publicsector
workers to be coddled
and spoiled rotten because
of their health-care benets
and pensions says more about
you than the workers (Welcome
to the real world, December
12th). You even distorted
the evidence, claiming that
public employees earn more
than those in the private sector.
As the Bureau of Labour
Statistics makes clear, when
comparing pay within occupations
public employees do not
receive more than their counterparts
in the corporate world.
We believe that all American
workers deserve decent
health care and a secure retirement.
The decline of unions in
the private sector is one reason
why those benets are not
shared by more families. Contrary
to what you might think,
it is not government employees
who brought the American
economy and state and local
budgets to the brink of disaster.
Rather than attack public
employees for negotiating
good contracts, we should
expand the ability of all workers
to bargain for better wages
and benets so that they and
their families can share in the
American Dream.
Gerald McEntee
President
American Federation of State,
County and Municipal Employees
Washington, DC
Britain’s got talent
SIR Bagehot made the point
that ‘Good luck to him’ was
once a characteristic British
attitude to self-made wealth
(December 12th). Unlike you, I
believe it still is. What riles the
British is wealth made through
inherited or institutional
privilege, monopoly, manipu-
The Economist January 2nd 2010 11
lation of regulation, consumer
rip-os, and, as in bankers’
bonuses, gambling with other
people’s money, losing, being
rescued by the taxpayer, having
no bloody gratitude and
expecting to start the whole
scandalous round all over
again.
I believe that Britons have
as much regard, admiration
and absence of jealousy as
they ever did for entrepreneurs
who succeed through talent or
a bright idea exploited through
sheer hard work. We also like
(though we might be jealous
of) a truly lucky winner like a
lottery millionaire and admire
(though we might think them
cocky) a successful TV talentshow
contestant who has the
guts to run the gauntlet of
judges and audience.
Baroness Sarah Ludford, MEP
London
String symphony
SIR Italian violin-makers
were not the sole master craftsmen
of the art during the 18th
century (Older and richer,
December 19th). Around 1715
Daniel Parker, an English violin-maker
working in London,
visited Stradivari’s Cremona
workshop, where he acquired
an abundance of the master’s
secrets, such as the ingredients
used to varnish the instrument,
wood-ageing and carving
techniques, which were
unknown to the outside
world.
Upon returning to London,
Parker produced instruments
with so gorgeous a tone that
when Fritz Kreisler performed
on his Daniel Parker violin two
centuries later, no one in the
audience, not even violinmakers
or music critics, could
believe that he was not playing
his own Strad.
Les Dreyer
Retired violinist of the
Metropolitan Opera orchestra
New York 7
Letters are welcome and should be
addressed to the Editor at
The Economist, 25 St James’s Street,
London sw1A 1hg
E-mail: letters@economist.com
Fax: 020 7839 4092
More letters are available at:
Economist.com/letters

Online
The year ahead
In anticipation
We release a series of podcasts in which our journalists discuss the likely big events
of the coming year
EACH Friday The Economist publishes a
20-minute podcast assessing what
eventspolitical, economic, business or
culturalmight dominate the news in the
forthcoming week. Now, to mark the turn
of the year, we are devoting three of these
podcasts to weighing up what will make
the news over the coming 12 months.
The football World Cup, to be held in
South Africa in June and July, will be a global
showstopper and should draw a cumulative
television audience of about 30 billion
viewers. For China, however, an Expo
in Shanghai may be the bigger occasion. In
politics, elections in several countriesa
Other highlights
When in Brussels Though small, charming
and slightly provincial, Brussels can be
surprisingly complicated for a visitor. It has
two separate parts, Belgian Brussels and
EU Brussels, two distinct languages and a
tricky taxi system. An audio guide advises
you to work out where you are going to do
business before booking a hotel
Economist.com/audiovideo/doingbusiness
general one in Britain, a presidential one in
Brazil, mid-terms in Americacould see a
shift away from centre-left incumbents to
centre-right parties. Anxieties over Iran,
Iraq and Afghanistan are likely still to dominate
international aairs. A great deal, not
least in the economy and business, remains
uncertain, but it is clear that governments
all over the place will have to grapple
with battered public nances and
growing debts. Listen to the discussions
and brace yourself for the year to come. 7
Download the podcasts via iTunes or:
Economist.com/weekahead
People power All the articles that
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Executive Focus
The Economist January 2nd 2010
13

14
Executive Focus
INTERNATIONAL TRADE CENTRE
APPOINTMENTS OF
DEPUTY EXECUTIVE DIRECTOR
AND
CHIEF, STRATEGIC PLANNING, MONITORING
AND EVALUATION
The International Trade Centre (ITC) provides trade related technical assistance directed at strengthening of the capacity of the business sector, particularly
SMEs, in developing countries and countries with economies in transition to increase trade and export potential leading to employment and poverty reduction.
Today’s increasingly complex global environment requires the promotion of inclusive development and ITC’s goal of achieving ‘Export Impact for Good’, is at
the core of our work. If you are a passionate and committed professional and want to make a lasting difference for exports as a tool for poverty reduction, ITC
is the right place to be. The ITC is seeking to appoint two new members to its senior leadership team.
The Deputy Executive Director (DED) is the ITC’s chief operating offi cer. The DED will ensure its human and fi nancial resources are aligned to deliver practical
solutions to the countries and businesses ITC seeks to serve. S/he will be results-focussed, will bring a thorough understanding of the way in which global
trading systems work and will be familiar with international organisations. The DED will be an experienced senior manager, with a track record of leading
complex teams in successful programme delivery in the international environment. The DED will also be a compelling ambassador for ITC, interacting at a
senior level with its partners in WTO, UNCTAD and other UN and International Organizations and with politicians, businesspeople and policymakers around
the globe.
The Chief of Strategic Planning, Monitoring and Evaluation will report directly to the Executive Director and help guide the senior management team in key
planning decisions. This person will be a seasoned and insightful strategic planner and bring experience of budgeting, resource allocation and programme
delivery. An understanding of the public policy context in which ITC acts will be crucial, as will substantial experience interacting at board level. The successful
candidate will possess a wide breadth of perspective on ITC’s activities and an articulate, balanced and confi dent approach.
The ITC has appointed Russell Reynolds to assist it in these recruitments.
For further information and details of how to apply, please visit www.rrapublicsector.com or www.intracen.org
The closing date for applications is 29th January 2010
ITC does not discriminate on the basis of gender, race, nationality, religion or other social criteria. ITC is fully committed to the implementation of the resolutions of the United National
General Assembly for gender mainstreaming and applications from qualifi ed women and men are equally welcome.
Applications from women and nationalities from developing and least developing countries are particularly encouraged.
Team Leaders and Senior Policy Analysts
Ministry of Foreign Affairs (MoFA) of the UAE
The Ministerial Policy Unit has been established to deliver
policy advice to the Minister and assist in developing longterm
policy. The unit will also be tasked with delivering critical
projects and supporting near term objectives. Operating in
small teams, members of the unit will work on the department’s
highest priorities, including issues of strategic interest.
We are looking for team leaders and senior policy analysts
to join the unit. Candidates may come from a variety of
backgrounds but all should have a record of academic and
professional excellence and experience working on major
strategy or policy projects.
Candidates for the team leader positions should preferably
hold a graduate degree from a top international university,
and have at least three years professional experience, ideally
with an international management consultancy. Senior policy
analysts should have a graduate degree in a relevant policy
fi eld combined with substantive work experience either in
consultancy or at a recognized international think tank or
institution.
Arabic language skills are not required but are advantageous.
Competitive packages will be available for the best candidates.
To apply, please send a CV and accompanying letter to
Lana.Nusseibeh@mofa.gov.ae. Applications should be
received by no later than Monday, 10th of January.
The Economist January 2nd 2010

Executive Focus
The Economist January 2nd 2010
•
•
Economists - Consultants
London
James Alexander Search is currently
engaged by a number of leading economic
consultancies recruiting experienced
economists at various levels to join their
established, successful and growing teams.
Associate Partner – Competition and Regulatory Economics. Provision
of support to clients during investigations by competition and regulatory
authorities. Developing the competition and disputes practice and
managing a team of dedicated consultants across a range of industry
sectors. The successful candidate will have a proven track record in
consultancy, a strong academic record in economics and the ambition to
sustain and grow the consultancy’s varied client base.
Manager/Senior Manager – A number of positions are available in
the areas of - competition economics, energy regulation and regulatory
cost modelling. The job responsibilities include providing expert advice to
internal and external clients in your fi eld, forecasting, market design and
defi nition, spreadsheet modelling, identifying and developing business
opportunities and assisting with preparations of client proposals. Strong
communication skills both written and oral will be needed. Successful
candidates are likely to have previous experience in consultancy, a
regulated industry or a regulatory body. Experience in the telecoms,
broadcasting and energy sectors would be particularly valuable.
Please email your cv in confi dence to
richardgawn@jamesalexandersearch.com
Website www.jamesalexandersearch.com Tel 0208 943 0114
15

16
Executive Focus
Board of Directors
Lead the generation that defeats child mortality
The Global Alliance for Vaccines and Immunization (GAVI) has
vaccinated 256 million children and saved 4 million lives. Since
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Now GAVI is rolling out new vaccines to stop the two biggest killers
of kids, pneumonia and diarrhea. The GAVI Fund Board seeks new
directors to help dramatically scale-up resources to save an additional
11 million children by 2030.
Candidates should have the capacity to become vested partners
in this endeavor, and possess senior executive experience and/or
knowledge of the philanthropic and charitable giving community.
For more information:
http://everychild.gavialiiance.org
Send confi dential letters,
resumes, and nominations to
dsellers@gavialliance.org
by January 31, 2010
The Economist January 2nd 2010

Brieng Waziristan
The last frontier
Peshawar and Wana
Waziristan, headquarters of Islamist terror, has repelled outsiders for centuries.
Now the Pakistani government is making a determined eort to control the place
OU should enjoy this, said a Push-
Ytun from Waziristan, the most remote
and radicalised of the tribal areas in
North-West Pakistan that border Afghanistan,
as he proered a bottle of Scottish
whisky. It was an excellent Sutherland single-malt;
but the man was referring to the
bottle’s more recent provenance, not its
pedigree.
He had been given it by a fellow Waziristani
working for Pakistan’s Inter-Services
Intelligence (ISI) agency. This spy had received
the illegal grog from an American
CIA ocer. Your correspondent’s friend returned
homewards, Scotch in hand, driven
by another Waziristani, who is also employed
as a xer by al-Qaeda.
Waziristan, home to 800,000 tribal
Pushtuns, is a complicated place. It is the
hinge that joins Pakistan and Afghanistan,
geographically and strategically. Split into
two administrative units, North and South
Waziristan, it is largely run by the Taliban,
with foreign jihadists among them. If Islamist
terror has a headquarters, it is probably
Waziristan.
For terrorists, its attraction is its erce independence.
Waziristanis (who come
mostly from the Wazir and Mehsud tribes)
have repelled outsiders for centuries. Marauding
down onto the plains of northern
Punjabnow North-West Frontier Province
(NWFP)their long-haired warriors
would rape, pillage and raise a nger to the
regional imperialist, Mughal or British, of
the day. No government, imperialist or
Pakistani, has had much control over
them. Not until the military steamroller
has passed over [Waziristan] from end to
end will there be peace, wrote Lord Curzon,
a British viceroy of India at the turn of
the 19th and 20th centuries.
With 50,000 Pakistani troops now battling
the Taliban in Waziristan, even that
may be optimistic. One of the current drivers
of the steamroller is Major-General Tariq
Khan, head of the army’s 60,000strong
Frontier Corps (FC), whose forebears,
rulers of neighbouring Tank, were
often robbed by the hill-men. For him, Waziristan
is the last tribal area.
Despite their remoteness, these tribesmen
have often had a hand in the fates of
governments in Kabul, Delhi and elsewhere.
In 1929 a British-backed Afghan, Nadir
Shah, used an army of Wazirs to seize
the Afghan throne. A force of Wazirs and
Mehsuds was dispatched in 1947 to seize
Kashmir for the newly formed Islamic republic,
sparking the rst Indo-Pakistan
war. In the 1980s Pakistan, America and
Saudi Arabia armed them to ght the Soviet
army in Afghanistan. In 2001 thousands
of Afghan Taliban and their al-Qaeda
guests ed to Waziristan. They have resumed
their jihad from across the border,
The Economist January 2nd 2010 17
this time against NATO troopsaided, Afghans
say, by the ISI.
Fighting and spying on the frontier is often
described as a Great Game, after the
19th-century Russo-British sparring for
which the phrase was coined. And on a
ve-day visit to South Waziristan in December
as a guest of the FCa rare privilege
for a foreignerand in interviews with
Wazirs and Mehsuds in Peshawar, Islamabad
and Lahore, your correspondent was
struck by how many used this phrase,
speaking of the crises that periodically
buet the frontier as a game, and themselves,
through their alliances with one
power or another, as players. It is all a
great game, said Rehmat Mehsud, a Waziristani
journalist. The army, the Taliban,
the ISI, they are all involved, and we don’t
know who is doing what.
Tribal kin may nd themselves playing
on dierent teams. For example, a Mehsud
army ocer, a member of the most radical
Pushtun tribe, whose militant chiefs head
a frontier-wide conglomeration of tribally
based Islamists known as the Pakistani Taliban,
admits that several of his cousins are
high-ups in the Taliban. Yet he bears them
no ill-will. We are all Mehsud, he says,
over a beer or two. So long as one family
earns, the rest can eat, said another South
Waziristani, explaining the advantages of
thus spreading political bets.
Making for the hills
The journey to Waziristan began on December
7th in Peshawar, NWFP’s capital,
with a thunderous roar, as just across the
street a man blew himself up. Black smoke
spewed from the blast-site, a police checkpoint,
now obliterated, at the entrance to
the province’s high court. Eleven were kil-1

18 Brieng Waziristan The Economist January 2nd 2010
2 led. Bloodied policemen and lawyers staggered
from the wreckage.
As a military convoy carrying your correspondent
tried forcing its way through
this throng from the adjacent Bala Hisar
fort, the FC’s citadel, there was chaos.
Horns blared and men and boys shrieked
and yelled. Cars attempted impossible Uturns.
A police wagon loaded with dead or
injured rattled along the pavement, bloodstained
limbs apping from its open back.
The FC men, representing a medley of
frontier tribes, Afridis, Mohmandis, Yusufzai,
bullied their way through. At speed,
the convoy headed south out of Peshawar
for Waziristan.
Since mid-October, when over 30,000
Pakistani troops launched an attack on
Mehsud territory, a retaliatory terrorism
spree has ripped through every large Pakistani
city, including Peshawar, Islamabad,
Rawalpindi, Lahore and Multan. Over 500
have been killed and thousands injured,
mostly by suicide-blasts executed by indoctrinated
young Mehsuds. Senior army
ocers, who have lofty status in a country
ruled by them for half its history, have
been among the dead. Among 40 killed in
a commando-style attack on a crowded
mosque in Rawalpindi last month was the
only son of Lieutenant-General Masood
Aslam, commander of Pakistan’s northwestern
campaign.
Bowling along the frontier, over castellated
ridges, boulder-strewn plains and
rounded limestone hills, there was much
evidence of recent explosions. A jagged
crater, in the Indus highway that spans
Pakistan north-south, showed where a police
check-point had been almost erased.
Two recently mined road-bridges were under
repair.
Nearing the arms-making town of
Darra Adam Khel, which is inhabited by
Afridis, whom the British considered almost
as erce as the Waziristanis, the convoy
accelerated again. A one-street mudbuilt
huddle, dedicated to making counterfeit
modern weapons, Darra was once a
favourite of western backpackers; for a few
dollars, they got to re an anti-aircraft gun
or lob a grenade. It is now Taliban-infested.
Nearing Tank, a town swollen with
Mehsud refugees, the hills unfold into a
large dusty plain. This is the last settled
area, as parts of NWFP that touch the tribal
areas are known: a civilised status emphasised
by a sign on its main drag, advertising
the Oxford high school. Looking
up to the north-west, the mountains of
South Waziristan, faintly outlined behind
a wintry mist, rise steeply to jagged peaks.
That is Mehsud country, only a night’s
journey away for tribal raiders.
The Mehsud have attacked and looted
Tank for centuries. They’re the biggest
thieves, crooks, liars, everything bad,
they’ll kill you for what’s in your pocket,
says Nawab Zadar Saadat Khan, the septu-
agenarian chief of Tank’s historic ruling
family. The Taliban are, in his view, just as
bad: Taliban! These are people who used
to stand outside our door begging for
food! he says inside the crumbling mud
walls of his ancestral fort, where Sir Henry
Durand, a British lord of the frontier whose
son drew the line that remains the border
between Pakistan and Afghanistan, met
his fate in 1871. He was a victim not of
treacherous tribesmen but of an elephant
he was riding, which reared and brained
him on a stone archway he was passing
through. But the British had a similar view
of the Mehsud to Mr Khan. According to an
1881report, no tribe had been more daring
or more persistent in disturbing the peace
of British territorynot a month passed
without some serious crime, cattle-lifting,
robbery accompanied by murder being
committed by armed bands of marauders
from the Mehsud hills.
Leaving Tank, the convoy climbed
through brittle yellow hills into South Waziristan,
aboard Toyota pickups, not elephants.
But the view was much the same
as in 1859, when British troops rst
marched into Waziristan. Stony ridges rise
up from ravines, dry riverbeds and hardly
vegetated plains, and curl around each
other. Houses are thinly sprinkled alongside
South Waziristan’s one good road,
which runs 80km (50 miles) from Tank to
its main town of Wana. Every one has 20feet-high
walls, built of sun-baked mud
studded with pebbles to withstand
machinegun bursts. On the grander dwellings
a multi-storey tower, with lavish
brickwork decoration and ring-slits, rises
up to improve the household’s eld-of-re.
But outside the ramparts are scenes of
everyday peasant life. Women in bright
headscarves stump along under bundles
of rewood. (In Waziristan, as in Afghanistan,
most tribal women wear burkas only
to town.) Swarms of children, also brightly
coloured against the ubiquitous yellow
backdrop of mud and rock, run shrieking
from the convoy. Bearded men, squatting
together in the pale afternoon sun, stare
impassively as the FC goes by.
With the annexation of Punjab in 1849,
British India reached the frontier. The British
had no immediate interest in these barren
tribal territories, which were mostly
claimed by Afghanistan. But to keep the
tribes at bay, they were forced to launch a
big military operation on the frontier almost
every year for the next half-century.
This was tiresome and expensive, so
around the time the frontier was demarcated
in 1893, the strategy changed, and the
British began a concerted eort to buy o
tribal elders, or maliks. In egalitarian Pushtun
society, where prestige is won in battle,
these grey-beards initially had limited authority.
But through British patronage it
grew, creating for the colonialists a pliable
tribal elite. With this toehold established,
the British then took a rmer grip on the
area, developing a system of indirect rule
that has hardly changed since.
In Wana, a two-road town 40km from
the Afghan border, surrounded by orchards
and a vast FC camp, Syed Shahab
Ali Shah explains the system that he runs.
He is South Waziristan’s political agent
(PA), the government’s chief representative
in the area and the man whose job it is
to keep the tribes in check. He imposes
nes and taxeson transport, trade, and
whatever else he choosesand returns this
money to the maliks, in the form of allowances
or other sweeteners. Representatives
of a network of tribal police, known
as khassadars, also get a share. In return,
these local leaders are charged with ensuring
the security of government property,
including roads, and personnel. When
they fail, the maliks must produce the culprit,
his guilt attested by a tribal jirga, or
council, for punishment by the PA (until recently
up to 14 years in prison with no appeal).
If they fail to do that, the PA can call
up the FC to weigh collective punishments
against the oending tribe, for example by
taking prisoners or bulldozing houses.
On occasion the PA may take notice of
extraneous crimes, including the bloodfeuds
that are a fact of Pushtun lifeWe
would never allow two tribes to ght each
other indenitely, says Mr Shah. But the
tribes are mostly free to decide such matters
among themselves, which they do, remarkably
harmoniously, through jirgas
and riwajtribal customary law. In Waziristan,
as in most of the tribal areas, there is
no written land register. Nor, until 2001,
was there much crime. The tribal areas
was lawless only in the sense that there are
no laws. But they have a certain way of going
about things there, says Major Geoffrey
Langlands, 92, a British colonial ocer
who stayed on, serving as headmaster of 1

The Economist January 2nd 2010 Brieng Waziristan 19
2 North Waziristan’s only secondary school
for a decade. His tenure ended, in 1988,
after he was kidnapped by an aggrieved
Wazir. He considered his detention, in a
frozen mountain hut, to be quite tolerable,
on the whole. Major Langlands is now
headmaster of a school in Chitral; his former
school in North Waziristan was closed
in July after the Taliban kidnapped 80 of its
pupils and ten teachers.
The British frontier eort was cemented
by a tough and accomplished breed of
Pushtu-speaking British PAs, several of
whom were murdered in Waziristan. The
enmity between the two big tribes, which
they encouraged by giving the Mehsuds a
disproportionately high share of loot,
helped keep them in check. Mehsuds, now
as then, consider Wazirs slow-witted, mercantile
and untrustworthyIf your right
hand is a Wazir, cut it o, advises a Mehsud.
Wazirs mainly consider Mehsuds as
vagabonds and cattle-rustlers, often quoting
as evidence for this a prayer that Mehsud
women are said to chant to their infants:
Be a thief and may God go with
you! Mehsuds also quote this, to illustrate
their people’s cunning and derring-do.
The maliki system, reinforced by the
draconian Frontier Crimes Regulation, still
the only law in the tribal areas, worked remarkably
well. Nonetheless, every decade
or two, the British faced a major tribal revolt,
typically led by a charismatic mullah.
A frontier trait, this was nowhere more
pronounced than among Waziristanis.
Their warrior mullahs included Mullah
Powindah, an Afghan-backed Mehsud,
who in 1894 led an attack on the British
team demarcating the frontier. Taking the
title, Badshah-e-Taliban, King of the Taliban,
he was a two-decade-long headache
for the British, who decried him as an irredeemable
fanatic, but were not above trying
to buy him. Curzon wrote that Powindah
was a rst-class scoundrel that we are
Don’t mess with the Waziristanis
taking under our wings.
A Wazir of North Waziristan, Mirza Ali
Khan, known as the Faqir of Ipi, was a
harder case. From 1936 to 1947 he led a freedom
struggle that at one point sucked in
40,000 British Indian troops, and was
quelled only by brutal aerial bombing.
Khan was also backed by the Afghans, and
was allegedly in contact with Nazi Germany.
But when he died, in 1960, the London
Times mourned him as a doughty
and honourable opponent.
From the ocers’ mess of the South
Waziristan Scouts, the FC’s Wana-based
contingent, formed in 1899, it is tempting to
think Waziristan has hardly changed since
those colonial days. The heavy silver beer
tankards of its former British inhabitants
stand, dutifully polished, ready for use.
The incumbents, Punjabi army ocers on
secondment to the FC, in fact drink Sprite
with their curried dinneryet their conversation
is in a time-worn tradition. Mostly,
they discuss their belief that India is behind
the current troubles on the frontier.
Lieutenant-Colonel Tabraiz Abbas, just in
from ghting the Mehsud militants, describes
nding Indian-made arms on the
battleeld. Substitute Russian for Indian
and you have the standard British
Great-Game gripe. As late as 1930, a senior
British ocial, in dispatches stored in India’s
national archives, reported that a
clutch of Russian guns had been found in
Waziristan: Of these 36 are stamped with
the ‘Hammer and Sickle’ emblem of the
Soviet government, while one is an English
rie bearing the Czarist crest.
Yet Waziristan is greatly changed. Its administrative
system, overrun by militancy,
now functions only weakly in Wazir areas.
There, the PA has a shaky peace agreement,
brokered by maliks, with the Taliban
who are to be seen lounging in Wana bazaar.
But the government has been entirely
absent from Mehsud areas for three years.
Mr Shah, the PA, sees the origin of this collapse
in the anti-Soviet war, which glamorised
Islamic militancy and ooded the tribal
areas with sophisticated weapons.
Wana was an important mujahideen
headquarters during that war, with many
willing recruits among some 80,000 Afghan
refugees encamped near the town. At
a gathering of a dozen lavishly turbaned
Wazir maliks in Wana, your correspondent
asked if anyone had fought the Soviets.
Everyone raised a handand one man a
leg, to reveal an ugly scar left by a Soviet
bullet.
When the Taliban and many foreign jihadists
were forced to ee Afghanistan in
2001, Wana made an obvious retreat. Several
hundred Uzbeksmembers of the exiled
Islamic Movement of Uzbekistan
and a smaller number of Arabs and Turkmen
came, guided by a local ne’er-do-well,
Nek Muhammad, who had won fame
ghting with the Afghan Taliban. And the
Wazirs opened their doors to these fugitives.
It is our custom to give sanctuary to
whoever requests it, said Mir Khajang, a
malik with a black beard and golden turban.
The Uzbeks said they had been
forced to leave Afghanistan and were good
Muslims. So we took them in. Indeed the
Pushtun tribal code imposes a duty of hospitality.
Yet the Wazirs are also said to have
charged the foreigner jihadists hefty rents.
Under pressure from America, the
army moved into the tribal areas to mop
up the al-Qaeda fugitives. It at rst oered
amnesty to other foreign ghters, provided
they registered and behaved themselves.
But in March 2004 it encountered erce resistance
near Wana, mostly from the Uzbeks.
The ghting left over 50 soldiers
dead, and ended in a peace settlement in
April, signed with Nek Muhammadwho
was killed in an airstrike shortly afterwards.
The Uzbeks and their local allies
then set out to control the area. Their rst 1

20 Brieng Waziristan The Economist January 2nd 2010
2 step was to kill its maliks. Seven of Mr Khajang’s
close relatives were accordingly
hanged by the Uzbeks.
The army often stood by, unsure whether
to ght the militants or negotiate with
them. Meanwhile a tide of militancy
spread from Wana across the frontier. Its
rallying-cry was the presence of foreign
troops in Afghanistan, where a Taliban insurgency
began gathering pace in
mid-2003. But the upheaval was also a response
to the weakness of an outworn administrative
systemwhich the presence
of the army, a powerful alternative command
structure, further undermined.
The Mehsud militants, for example,
have been led by veterans of Afghanistan’s
wars, such as Baitullah Mehsud, supreme
leader of the Pakistani Taliban until he was
killed by an American drone in August. Yet
certainly compared to the Wazirs, the tribe
has little interest in Afghanistan. Among
them, the uprising is an obvious power
grab by a jihad-pumped underclass. The
tribe’s maliks, widely reviled as corrupt
puppets of the British Raj, according to a
high-up Mehsud, were again the rst victims.
Across South Waziristan over 600
have been murdered. In addition, an assistant
PA was kidnapped in North Waziristan
and several lower-level civil servants
killed. All were blamed for a chronic lack
of development. According to a decadeold
census, the literacy rate across the tribal
areas is 17%and just 3% for womencompared
to 44% across Pakistan. The tribal areas
have only one doctor for every 8,000
peopleand no decent hospital for over
half a million Mehsuds.
With the army still grappling for a strategy,
two events in 2007 demonstrated that
the insurgency’s centre had shifted to the
Mehsud. First, egged on by the ISI, the Wazir
tribes were incited to rise up and drive
the Uzbeks from Wana, whence most went
to Mehsud areas. Then, in July 2007, the
A soldier’s lot is not a happy one
army’s stormed an Islamabad mosque, the
Lal Masjid, that had been taken over by
well-armed jihadists, killing over 100. This
sparked an ongoing Pakistan-wide terrorism
campaign, including around 300 suicide
blasts to date, for which the Mehsud
have been largely blamed. Benazir Bhutto,
a two-time former prime minister, assassinated
in a suicide and gunre attack in late
2007, was allegedly among their victims.
For the next 18 months or so, the news
from the frontier was grim. Flush with foreign
cash and through their own extortion
rackets, the Mehsud militants and their allies
seized a broad swathe of territory, from
Waziristan through Orakzai and Khyber to
Bajaur, and including much of NWFP’s
Malakand region. Across the settled areas,
the slogan Meezh dre MaseetI belong
to the Mehsudstruck terror. Wealthy Peshawaris
ed the city, fearing bearded kidnappers.
Last April the Taliban seized Malakand’s
Buner district, just 100km (62
miles) from Islamabad.
This said little for Pakistan’s army. It had
long been accused of tolerating, even harbouring,
the Afghan Taliban. Now it
seemed neglectful of its country’s very security,
as blasts ripped through Pakistan’s
cities. And there was something to both
charges. Many senior army ocers considered
that the Afghan militants were no
concern of Pakistan’s, and reckoned it was
better to come to terms with the Pakistani
Taliban rather than ght them. This was to
some degree understandable: the frontier
campaign was unpopular in Pakistan, the
army was coming o badly against the irregulars,
and making deals with rebels
was, after all, how the frontier had been
contained for 150 years. Unfortunately,
however, that method was no longer
working.
So this year the strategy was changed,
with considerable success. In May the
army swept the Taliban from Malakand, to
national acclaim. And in October and November,
after a three-month blockade of
the Mehsud ef, displacing over 200,000
people, it routed the militants there. On the
road from Tank to Wana, perfect round
shell-holes, punched through the mudwalls
of now-empty houses, show where
the army advanced. In Sarwakai, a former
Taliban logistics hub, army bulldozers
were levelling a bazaar as open-backed
trucks loaded with prisoners, blindfolded
and bare-headed, drove by. Most of their
comrades, including the Pakistani Taliban’s
current leader, Hakimullah Mehsud,
escapedsome to Orakzai, where they are
again under attack. Several thousand more
are believed to be in Miran Shah and Mir
Ali, in North Waziristan, and the army is
currently deciding whether to pursue
them there.
Pakistan will struggle to pacify Waziristan
so long as Afghanistan is ablaze. Yet it
is at last giving itself a fair chance, on the
heels of its advancing troops, by launching
a serious-looking bid to rebuild its shattered
administration. South Waziristan’s
development budget has been increased
15-fold and, with improved security, the PA
should actually be able to spend it. To sideline
the weakened maliks, he will be given
command of a new, 4,000-strong, tribal
police force. The agency may also be divided,
to ensure greater attention is given to
the marginalised and seething Mehsuds.
And political reform is coming, too, with a
law passed last August granting political
parties access to the tribal areas. For more
meaningful democracy, some far-sighted
ocials advocate setting up agency-level
councils, with powers over development
projects.
This would be overdue. Many young
Waziristanis are hungry for the political
freedoms enjoyed, alas tfully, by the rest
of the countryas their enthusiasm for an
abortive eort to introduce local government
in 2005 showed. Even the Wazir maliks
assembled in Wana, prime beneciaries
of the old order, admitted this. Our
youngsters want reform, adult franchise,
no collective punishments, admitted one
of the old men, Bizmillah Khan. But they
also want our culture, our traditions and
our freedom to remain intact.
They will be disappointed. When Waziristan
is merged with Pakistan proper, as
eventually it must be, good things will be
lost. The jirga system, so much more ecient
than Pakistani courts, will be weakened
or erased. Corruption, rife in Pakistan,
will become endemic. And the
furious spirit of independence that has impelled
Wazirs and Mehsuds to resist outsiders
for centuries will recede. For the
most part, that would be a blessing. Yet in
that calmer future, when Pakistan’s current
agonies are largely forgotten, many may
hark back fondly to a world enlivened by
such remarkable people. 7

United States
America, al-Qaeda and home-made bombs
From shoes to soft drinks to
underpants
london and washington, dc
The attempted bombing of an airliner highlights gaps in intelligence-sharing and
airport security
THE charred underpants of Umar Farouk
Abdulmutallab tell the story of a
terrorist attack averted only by luck. The
23-year-old son of a prominent Nigerian
banker had hidden a stful of high explosive
in a package sewed into the crotch of
his underwear. As Northwest Airlines
ight 253 from Amsterdam prepared to
land in Detroit on Christmas Day, with 290
people on board, he covered himself with
a blanket and injected a chemical to detonate
the explosive. Mr Abdulmutallab succeeded
only in starting a re, which was
put out by passengers and the cabin crew
as they wrestled him down.
Al-Qaeda’s latest attempt to blow up an
America-bound airlinerafter Richard
Reid’s failed shoe-bomb in 2001, and the
arrest in 2006 of Britons planning to destroy
several aircraft with liquid explosives
in soft-drink bottleswill bring yet more
misery for travellers. Security queues immediately
lengthened. Despite worries
about privacy, there were calls for the introduction
of full-body scanners to identify
items under clothing that cannot be
found with metal-detectors. Some passengers
were even being told to stay in their
seats, without blankets or even books on
their laps, for the last hour of their ight.
Al-Qaeda’s branch in Yemen quickly
took the credit, hailing Mr Abdulmutallab
as a brother hero for evading security
screening and intelligence monitoring.
More attacks were in the works: With Allah’s
permission, we will come to you
from where you do not expect.
Yet the attack should not have been unexpected.
Al-Qaeda’s Yemeni branch has
been resurgent (see story on page 35) since
it merged a year ago with the remnants of
the decimated Saudi franchise to relaunch
al-Qaeda in the Arabian Peninsula,
boosted by the inux of several veterans
of Guantánamo Bay. It has moved from attacks
against targets in Yemen to a regional
agenda, and now to global jihad. A Yemeni
preacher, Anwar al-Awlaki, exchanged emails
with Major Nidal Hasan, the American
army psychiatrist who killed 13 people
in November at a base in Fort Hood, Texas.
The Yemeni branch seems to have pioneered
the underpants-bomb in August,
when it nearly killed Prince Muhammad
bin Nayef, Saudi Arabia’s deputy interior
minister. Mr Abdulmutallab is said to have
obtained the same explosive, known as
PETN, in Yemen and carried it undetected
as he travelled through Ethiopia, Ghana
and Nigeria to Schiphol airport in Amsterdam,
where he boarded ight 253.
Other chances to foil the attack were
missed. Nigerian authorities, and the
American embassy in Abuja, were told in
November by Mr Abdulmutallab’s father
that his son had become an extremist and
had disappeared, maybe to Yemen. The
younger Mr Abdulmutallab was placed on
the least important of America’s four terrorism
watch-lists, and he kept his multipleentry
visa to the United States.
In Britain, though, ocials said Mr Abdulmutallab
had crossed the radar screen
of MI5, the domestic intelligence service,
The Economist January 2nd 2010 21
Also in this section
22 House prices and mobility
22 Asian carp advance on Chicago
23 Tourism in Hawaii
23 The politics of rum
24 Health reform
Lexington is on holiday
Democracy in America, our blog on American
politics, is open to commentary daily at
Economist.com/democracyinamerica
for radical links during his time as a mechanical-engineering
student (and at one
point president of the Islamic Society) at
University College London between 2005
and 2008. He was placed on an immigration
watch-list in May 2009, after he was
denied another student visa for applying
to a bogus college.
Why nobody linked all these danger
signals is the subject of urgent investigation,
and the cause of growing embarrassment
for the Obama administration. Janet
Napolitano, the homeland-security secretary,
declared initially on December 27th
that the system has worked really very,
very smoothly, only to accept the next
day that the system had in fact failed miserably.
Then Barack Obama twice broke
away from his holiday in Hawaii to speak
in increasingly blunt terms about the mix
of human and systemic failures that contributed
to this potential catastrophic
breach of security. Mr Abdulmutallab
was a known extremist. The warning
from his father had not been eectively
distributed in the intelligence system; even
without it there were other bits of information
that should have raised red ags
and kept him o planes ying to America.
Ocials say these bits included reports
that an unnamed Nigerian was being prepared
for an attack, and that al-Qaeda
wanted to strike over Christmas. Mr
Obama promised accountability at every
level, and ordered that a preliminary review
be completed by December 31st.
The blame game
Many Republicans already argue that Mr
Obama is soft on terrorism; he prefers to
denounce violent extremists than to refer
to George Bush’s war on terror. Ms
Napolitano has been mocked for talking of
man-caused disastersin order, she says,
to avoid the politics of fear. The loudest
complaints have been prompted by Mr
Obama’s promise to close the prison at 1

22 United States The Economist January 2nd 2010
2 Guantánamo Bay (where nearly half the
remaining detainees are Yemeni) and the
decision to try ve suspected terrorists (including
Khalid Sheikh Mohammed, the alleged
September 11th mastermind) in civilian
courts.
It is dicult, though, for Mr Obama’s
opponents to make a persuasive case so
soon after he decided to send an additional
30,000 troops to Afghanistan. On his
watch American drones and special forces
have been busier than ever, not only in Afghanistan
and Pakistan but also, it is reported,
in Somalia and Yemen. Mr Obama restated
that every element of America’s
power would be used to disrupt, to dismantle,
and defeat the violent extremists
who threaten uswhether they are from
Afghanistan or Pakistan, Yemen or Somalia,
or anywhere where they are plotting
attacks against the US homeland.
Intelligence analysts reckon that strikes
have weakened al-Qaeda’s core leadership
in Pakistan’s lawless border region.
Perhaps so. But al-Qaeda is adaptable, inventive
and is seeking new bases. Joe Lieberman,
the hawkish independent senator,
says he was warned by an American
ocial in Yemen: Iraq was yesterday’s
war. Afghanistan is today’s war. If we don’t
act pre-emptively, Yemen will be tomorrow’s
war. 7
House prices and mobility
O the road
Washington, dc
During this recession too many
Americans are rooted to the spot
WHEN the going gets tough, it’s said,
the tough get going. Sadly, this does
not seem to apply to unemployed Americans
any more. A high degree of population
mobility has traditionally been one of
America’s great economic strengths, providing
a exibility that allows for more ef-
cient labour markets and lower unemployment.
However, during this recession
Americans have been hunkering down,
not moving on.
Declining mobility has in fact long been
a feature of the post-war American economy,
thanks to the ageing of its workforce
and rising rates of home ownership. In the
two decades after the second world war,
the domestic migration rate hovered
around 20%, but by 2000 it had fallen to
under 15%. And amid the recent economic
troubles mobility has declined even more.
There are exceptions. In the deep recession
of 1981-82 domestic migration jumped
from below 17% to almost 20%, driven by
workers moving out of a deindustrialising
Midwest. Between 2000 and 2001, in con-
trast, the migration rate fell from over 15% to
under 14%. Today workers are all but stuck,
thanks to the paralysing eect of the housing
bust. Nearly one in four mortgage borrowers
owe more on their loans than their
homes are worth. These underwater
borrowers face a stark choice: foreclosure
or staying put. Millions of Americans now
nd themselves pinned down in places
where unemployment rates are well
above the national average. In 2008 the domestic
migration rate was just under 12%,
and the rate of migration between states
fell to 1.6%less than half the level that prevailed
in the post-war decades.
One might expect the problem to be
most severe in the bubbliest of markets,
where homeowners routinely nd themselves
owing twice the value of their
homes. In fact, the opposite is true. High
rates of foreclosure in bubble states have
freed workers to leave for more promising
markets, including the once too-expensive
cities from which such migrants previously
ed. The reversal of fortune has been
abrupt for former magnet states such as
Florida and Nevada (see chart). In 2005,
over a quarter of a million Americans
moved to Florida. During the past two
years the state has experienced a net population
loss to other states of 50,000 people.
A few bright spots have managed to attract
mobile Americans. Texas and Oklahoma
weathered the downturn better
than most, thanks to strong local energy industries
and the absence of a housing
boom and bust. The same is true for the
Washington, DC, area, where an all-but-recession-proof
economy based on the federal
government has already managed a
return to pre-downturn output levels.
Slowing migration has, ironically,
helped California, among the most economically
battered of states. California’s
housing boom coincided with a large increase
in out-migration, as expensive
housing drove residents to neighbouring
states. Those neighbours no longer seem
so attractive next to increasingly aordable,
entertaining and surf-fringed California.
Between 2008 and 2009 fewer than
100,000 Californians left the state, the best
Staying put
Net domestic migration*, ’000
Florida
California
Nevada
Arizona
300
200
100
+
0
–
100
200
300
400
2000 01 02 03 04 05 06 07 08 09
Source: Census Bureau *Mid-year estimates
performance since 2003.
In some parts of the country the decline
in out-migration may be a welcome sign.
In the north-east population loss began
slowing in the middle of the decade,
thanks to a broad-based economic revival.
But elsewhere, falling migration means little
more than pain. In Michigan the rate of
population loss declined between 2008
and 2009, even as the unemployment rate
soared above 15%. Workers whose jobs
have disappeared for ever are, for a variety
of reasons, unable to move on. 7
Asian carp advance on Chicago
The invaders
chicago
Desperate eorts to keep a piscine
predator from the Great Lakes
THEY came to America in the 1970s,
where they were employed to eat up algae
in the sh farms of Arkansas. Before
long, however, they had found their way to
the vast Mississippi River basin. Gobbling
plankton and spawning fast, they competed
with native species. Steadily they
moved north, closer and closer to the Great
Lakes, which hold 90% of America’s surface
freshwater. And then, on November
20th 2009, federal and state agencies announced
that DNA from Asian carp had
been found about eight miles (13km) from
Lake Michigan, in a canal near Chicago.
Panic has reigned ever since.
More than a dozen federal, state and local
agencies are trying to fend o the invaders.
Since November there have been
poisonings and press conferences, announcements
and legal manoeuvres. On
December 21st, cheered on by environmentalists,
Michigan’s attorney-general
led a lawsuit in the Supreme Court, demanding
that the waterways connecting
Lake Michigan to the Mississippi be closed.
In the battle of man versus carp, man
seems thoroughly outmatched.
Biologists fear the sh will devastate
the lakes’ $7 billion shery and damage an
already fragile ecosystem. Yet the problem
is wholly man-made. Asian carp belong in
Asia, not Arkansas. And the Great Lakes
have no natural connection to the Mississippi.
It was engineers who dug the Chicago
Sanitary and Ship Canal to divert the
city’s sewage away from its drinking water.
The canal now has two underwater electric
barriers designed to repel sh, but
these were installed after years of delay.
Ocials are trying various tactics. In
early December 2,200 gallons (8,300 litres)
of poison was dumped into the canal.
More than $3m was spent and thousands
of dead sh were dragged from the water. 1

The Economist January 2nd 2010 United States 23
2 But there was only one Asian carp among
them. Then, on December 14th, the Environmental
Protection Agency announced
that $13m would be spent to prevent carp
from washing into the canal from nearby
waterways. Such eorts are dismissed as
footling by many environmental-advocacy
groups, who want to separate the lakes
from the Mississippi for good.
This would, of course, disrupt freight
trac. There is also the issue of Chicago’s
sewage. Fights over such changes could
drag on for years, and in the meantime
Asian carp could surge into Lake Michigan.
No one can say for certain what would
come next, but the possibilities are ugly. At
the very least, boaters might have to adapt.
Duane Chapman of the United States Geological
Survey has spent years studying
Asian carp in the Mississippi basin. A
jumping silver carp once smacked his
boat’s throttle, sending his vessel careering
up the river bank. 7
Tourism in Hawaii
Hoping for an
Obama eect
MAUI
A fall in tourism has hit Hawaii hard
BARACK OBAMA’s decision to spend
Christmas in Hawaii was welcome
news for an island state battered by the
brutal waves of recession. The state needs
all the media attention and tourism dollars
it can get, and is eagerly linking itself to the
presidential holiday. Its ocial tourism site
has a page dedicated to Mr Obama’s favourite
activities in Hawaii (where he was
born and partly brought up), which quotes
his wife as saying that You can’t really understand
Barack until you understand Hawaii.
Tour companies shuttle people between
places Mr Obama used to frequent,
including the building where he lived.
Mr Obama’s occasional presence in Hawaii,
however, has not been enough to lure
people to America’s 50th state. Luxury
holidays were one of the rst things people
gave up when the economy slid into re-
The politics of rum
Sir Henry’s legacy
Ponce, Puerto Rico
A dispute over Caribbean distillation has tempers aring in Washington, DC
SHREWD dealmaking or modern Caribbean
piracy? That is the question
surrounding a contract between Diageo,
the world’s largest drinks company, and
the government of the United States
Virgin Islands (USVI). The deal, signed in
June 2008, provides Diageo with nearly
$3 billion in tax breaks over the next 30
yearsincluding marketing subsidies, a
90% reduction in corporate-income taxes,
exemption from property taxes and a
new distillery and warehouses to be paid
for by government bonds, all to produce
Captain Morgan, a swiftly growing brand
of spiced rum currently made by the
Serralles distillery in Ponce, Puerto Rico.
The money for this exceptionally
generous deal comes from excise-tax
rebates. The federal government in Washington,
DC, returns $13.25 of every $13.50
it collects per proof-gallon of rum to
Puerto Rico and the USVI. Puerto Rico
uses most of those funds for infrastructure,
land conservation and to boost its
general fund; it returns no more than 10%
of its rebate to its rum industry. The USVI
is proposing to return nearly half of its
rebate to Diageo alone. Puerto Rico is
now crying foul, pitting two American
insular possessions against each other.
Donna Christensen and Pedro Pierluisi,
the (non-voting) congressional
representatives from the USVI and Puer-
cession, and travelling to Hawaii is expensive;
the ight time is around ve hours
from California. Tourism declined by more
than 10% in 2008, and probably slid by a
further 5% or so in 2009. Visitors, when
they do come, are staying fewer days and
spending less. Last June, hotel-room occupancy
hit a low of 61%.
The University of Hawaii Economic Research
Organisation does not expect tourism
to return to its 2006 peak levels of
over 7m visitors until 2012. That hurts:
around three-quarters of Hawaiian jobs
to Rico respectively, introduced warring
bills on Capitol Hill last year. Ms Christensen’s
bill would make permanent the
territories’ remittance from the federal
rum taxas things stand, Congress must
vote every two years to keep it at $13.25 a
gallon, otherwise it falls to $10.50. Mr
Pierluisi’s bill would cap the proportion
of funds that can be returned to rum
producers at 10%.
Members of the congressional black
caucus are backing the USVI and representatives
of Puerto Rican descent have
taken Puerto Rico’s side. In December
Diageo engaged a prominent rm of
lobbyists and John deJongh, the governor
of the USVI, made the rounds in
Washington, DC, to explain his position.
Mr deJongh says Puerto Rico’s bill
would set a dangerous precedent for
federal involvement in matters between
local and state governments and companies.
He and Diageo also point out that
the company was considering moving
production out of the United States
altogether; this keeps it in the country,
though at the cost of many jobs at Serralles
in Puerto Rico, 85% of whose rum is
used for Captain Morgan. But Puerto Rico
has another worry: if the rebates are
simply seen as corporate subsidies, they
could now prove a tempting target for a
cash-strapped federal government.
are tied in some way to the tourism industry
according to Leroy Laney, an economist
at Hawaii Pacic University. The slump has
helped drive unemployment from 2.6% in
2007 to an estimated 7% in 2009.
In order to entice people to travel to Hawaii,
hotels have lowered room rates and
are oering free nights. But although discounting
has helped oset even steeper
declines, it has eaten up the revenues of
hotel chains and of the government. Linda
Lingle, the state’s governor, recently announced
measures to close a $1.2 billion 1

24 United States The Economist January 2nd 2010
2 budget gap that would otherwise open up
by 2011. She wants to delay tax refunds and
divert hotel-tax revenue from county governments
to the state. That, however, will
leave local governments impoverished.
The Hawaiian economy will not see
brighter times until tourism rebounds, and
that will not happen until the economies
of the United States mainland and Japan,
Hawaii’s largest markets, stabilise. So far,
Hawaii has focused on advertisingdeploying
hula dancers to tour various states,
for example. It is also setting its sights on
China. Hainan Airlines plans to start direct
ights from Beijing to Honolulu. Mike
McCartney of the Hawaii Tourism Authority
says that Hawaii is trying to market the
points of cultural connection, such as the
fact that Sun Yat-sen, the founder of modern
China, went to school in Hawaii. Much
like a certain American president. 7
Health reform
The home stretch
new york
Democrats are one step from turning
dreams of health reform into reality
RONALD REAGAN would not be
pleased by what is happening in Congress
today. Over the past century many
other presidents tried to expand healthcare
coverage to all Americans. But as far
back as 1961Reagan argued that this would
lead to socialised medicine, from which
will come other government programmes
that will invade every area of
freedom as we have known it in this country
until one daywe have socialism.
Undaunted by such conservative fears
of rationing and death panels, Barack
Obama has pushed his party’s congressional
leaders to draft a sweeping health-reform
law. After much ugly bickering and
bribing throughout 2009, the Democrats
passed a version of reform through the
House of Representatives in November by
a vote of 220 to 215. The ght was bloodier
and the pay-os more brazen in the Senate,
but on Christmas Eve the upper chamber
passed a health-reform bill on a party-line
vote of 60 to 39 (60 being the minimum
number required to overcome Republican
procedural obstacles).
Democrats are savouring this victory
over the holiday recess, but when they return
in January the joy will fade. That is because
coming up with a nal law that Mr
Obama can sign before his rst state-ofthe-union
message (usually delivered by
the end of January) will require merging
the eorts of the two chambers.
A casual glance might suggest that not
much separates the two bills: both would
dramatically expand health coverage by
forcing insurers to end discrimination
based on health, introducing a requirement
for everyone to buy insurance along
with subsidies to help those who have
trouble nding the money to do so, and
creating heavily regulated insurance exchanges.
And some of the dierences will
be easy to reconcile. Each bill has timid efforts
at cost control (the House has lots of
pilot programmes on payment reform,
while the Senate calls for an independent
commission to propose future payment reforms)
which, if combined, will improve
the nal product.
Alas, there are also several big dierences
between the bills that will not be
easy to reconcile. The most controversial
involves the creation of a government-run
insurer (or public option), a shibboleth
of the political left. The House bill has a
weak version of a public option, but the
Senate bill lacks one altogether. Howard
Dean, a former presidential candidate and
leading leftist, argues that the whole reform
eort is thus a sham and should be
scrapped. Yet all conservatives and many
moderates, especially in the Senate, say
they will not vote for any nal bill that contains
a public option.
Another big dierence is in how the
two bills pay for the expansion of coverage.
The likely nal cost is around $900 billion
over the next decade, a limit imposed
by Mr Obama. The House version soaks
the rich with a 5.4% income surtax on individuals
making more than $500,000. That
proposal was deeply unpopular in the
Senate, which chose instead to impose a
40% tax on the most generous health-insurance
plans. The most dicult rift may
be over abortion. The House bill contains a
severe clause that makes it impossible for
insurers that accept federal subsidies to offer
abortion cover at all. The Senate bill al-
Obama’s Christmas present and future
lows insurers to do this, but forces patients
receiving subsidies to write separate
cheques for abortion cover.
The usual way bills are reconciled in
Congress is by cabal. A committee of elders
from both chambers meets in secret
and hashes out a compromise, and the revised
oering is put to both chambers at
the same time. That could take weeks given
the size of the bills and the procedural
blocking tactics likely to come from Republicans.
Some insiders are now talking of an
unusual, and possibly speedier, approach
that involves any compromise being
rushed through one chamber rst on an
up-or-down vote; if it passed, the other
chamber would then try to pass an identical
bill quickly.
What next?
Whatever the manoeuvres, the hard part
will be the substantive compromises to
come. The current betting is that the Senate
version will prevail on most points; the
vote was so close that Democrats cannot
aord to lose even one senator. This means
that the public option will probably wither
on the vine. On nancing, too, the Senate is
unlikely to accept the House income-tax
proposal as it stands, though a watereddown
version may be combined with a
weaker tax on expensive health plans.
Though the odds are now strongly in favour
of some sort of health bill landing on
Mr Obama’s desk within a month, it is by
no means a certainty. Abortion, an issue on
which many American politicians nd
compromise impossible, may yet doom
this eort altogether. Senator Christopher
Dodd, a grizzled veteran from Connecticut,
assesses the prospects this way: There are
large dierences between the House and
the SenateThis is very precarious. Anybody
who thinks this is done hasn’t been
around here very long. 7

Brieng Emerging markets and recession
Counting their blessings
Developing countries have come out of the recession stronger than anyone had
expected. This will have profound consequences for the rest of the world
THE political and social consequences
of the worst economic crisis since the
Great Depression have been milder than
predicted. In developing countries, at least,
governments have not fallen in a heap, as
they did after the Asian crisis of 1997-98.
They have not battled their own people on
the streets, as happened in Europe during
the 1930s. Social-protection programmes
have survived relatively unscathed. There
have been economic-policy shifts, naturally,
but no panicky retreat into isolation,
populism or foreign adventures. The good
news has not been spread evenly, of
course: some countries have ridden the
storm more successfully than others. And
these are only rst-round eects: things
could still get worse. So far, though, resilience
has been the order of the day.
This was not expected a year ago. Then,
it seemed likely that normal rules would
applythat when the rich world sneezes,
developing countries get swine u. In the
fourth quarter of 2008, when rich economies
were contracting by 5% to 10% a year,
real gdp fell at an average annualised rate
of around 15% in some of the world’s most
dynamic economies, including Singapore,
South Korea and Brazil. The fall in Taiwan’s
industrial outputdown by a third during
2008was worse than America’s worst
annual fall during the Depression.
Emerging markets seemed likely to suf-
fer disproportionately because of their
trade and nancial links with the West. Exports
in that dreadful last quarter of 2008
fell by half in the Asian tigers at an annualised
rate; capital ows to emerging markets
went over a cli as Western banks deleveraged.
The Institute of International Finance
(IIF), a think-tank in Washington,
DC, forecast that net private capital ows
into poor countries in 2009 would be 72%
lower than at their peak in 2007, an unprecedented
shrinkage.
As people peered ahead into 2009, no
forecast looked too dire. The end of globalisation
was a common refrain. Some
thought emerging markets would turn inward
to protect themselves from the conta-
V for vigour
Stockmarkets, % change on previous year, $ terms
Source: Thomson Reuters
2008 2009
Brazil -55 +142
China -68 +125
India -62 +88
Indonesia -57 +114
Malaysia -42 +46
Mexico -40 +56
South Korea -56 +61
Taiwan -47 +78
The Economist January 2nd 2010 25
gion of the West. Others forecast that hundreds
of millions of people would be
tipped into hunger. The IMF’s managing
director, Dominique Strauss Kahn, fretted
that unless governments did the right
things at the right time, there was a threat
of civil unrest, perhaps even of war.
At the start of 2010 there are indeed a
billion hungry people, for the rst time in
40 years. But the other forecasts now look
excessively gloomy. Whereas the last three
months of 2008 saw one disaster after another,
the end of 2009 was a period of
healthy recovery, as measured by capital,
bond and stockmarkets.
During 2009 the largest developingcountry
stockmarkets recouped all the
losses they had suered during 2008 (see
table below). October 2009 saw the largest
monthly inow into emerging-market
bond funds since people started tracking
the numbers in 1995. Russia’s central bank
estimated that the country would attract
$20 billion of capital inows during the
fourth quarter, compared with capital out-
ows of $60 billion in the rst nine
months. The IIF now reckons that net private
capital ows to developing countries
will more than double in 2010 to $672 billion
(still a long way below their peak). So
much new money is ooding into emerging
markets that calls for capital controls
are echoing around the developing world.
This craze for emerging-market paper
could perhaps prove a bubble. But as a
measure of reputational change, it is accurate.
Countries that were disaster zones at
the start of 2009 achieved gold-rush status
by the end of it. This turnaround reects a
resilient economic performance during
the recession. It also reects a stunning degree
of political and social cohesion. 1

26 Brieng Emerging markets and recession The Economist January 2nd 2010
2 The most important economic reason
for this is that emerging markets were less
aected by the rich world’s recession than
seemed likely early in 2009. Big populous
countriesChina, India, Indonesiadid
not tip into recession; they merely suered
slower growth. Brazil and the Asian tigers
saw output fall but bounced back. The pattern,
though, was variable. The Baltic states
endured a depression; Mexico suered
from its dependence on America; eastern
Europe was harder hit than Asia; poor African
countries suered more than middleincome
Asian ones.
Overall, the loss of output in emerging
markets during 2007 was somewhat greater
than it had been in the Asian crisis of
1997-98, but less than had been expected
and much less than the fall in world gdp
(see chart 1). Emerging markets beneted
from their own economic-stimulus programmes
and from policy activism in rich
countries. Rich-country bail-outs and
monetary loosening stemmed worldwide
nancial panic and helped stoke an appetite
for emerging-market exports and assets.
In addition, some developing countries
built up big cushions of foreignexchange
reserves after the Asian crisis
which aorded them some protection.
Surprising stability
This economic resilience has had big political
and social benets. Politically, the most
striking feature of the crisis is how little instability
it caused. The worst slump in decades
has so far led to the fall of just one
emerging-market government: Latvia’s
(Iceland’s government also collapsed).
Other east-European governments have
come under pressure, notably Hungary’s.
But two of the biggest emerging marketsIndia
and Indonesiaheld national
elections in 2009, and both were won by
the ruling party. This was unusual in India,
which traditionally votes against incumbents.
In another emerging giant, Brazil,
the outgoing president is likely to leave of-
ce in 2010 with poll ratings in the stratosphere
(Luis Inácio Lula da Silva’s favourability
ratings stayed above 60% for most of
2009). The global crisis seems to have consolidated,
not undermined, the popularity
of large developing-country governments,
presumably because the economic crisis
was perceived to have begun elsewhere
and been dealt with eciently.
Contrast that with what happened during
the Asian crisis of 1997-98. Widespread
rioting in the wake of abrupt devaluation
led to the fall of Suharto’s 30-year dictatorship
in Indonesia. Devaluation added to
popular discontent in the Philippines, culminating
in the overthrow of President Joseph
Estrada. There was mass discontent
in Thailand as millions of urban workers
lost their jobs and wandered back to their
villages. Financial collapse in Russia produced
a political crisis and led to the sack-
A bigger bounce
GDP, % change on previous year
World
Developing
countries
Rich countries
FORECAST
4
2007
Source: IMF
2008 2009 2010
ing of the prime minister, Sergei Kiriyenko.
A couple of years later, Argentina defaulted
on its debt and ran through three
presidents in ten days at the turn of
2001-02. (What did you do for Christmas?,
ran the contemporary joke. I was
president.) In country after country, governments
reacted to nancial stress and
plunging currencies by imposing emergency
austerity measures which brought them
into conict with rioters on the streets.
That has been much rarer this time.
The second striking feature of the crisis
has been that, with one or two exceptions,
it seems not to have caused any fundamental
shift of popular opinion. There has
been no upsurge of angry pessimism, nor
any signicant backlash against capitalism
or free markets. That doubtless explains
much of the political composure.
Compared with people in the West,
those in big emerging markets seem in almost
sunny mood. In China, India and Indonesia,
according to the Pew Global Attitudes
Project in Washington, DC, more
than 40% of respondents say they are satis-
ed with their lives (in China the gure is
87%). In France, Japan and Britain, the share
is below 30% (see chart 2 on next page).
This is unusual: measures of life satisfaction
tend to rise with income, so you
would expect levels to be lower in emerging
markets, as they were in 2002-03. The
reversal of that pattern may reect a sense
in those countries of their quick recovery.
It is true that the overall levels hide
some disturbing trends. A study of Bangladesh,
Indonesia, Jamaica, Kenya and Zambia
by the Institute of Development Studies
at the University of Sussex found that
people there said they were saving less,
celebrating together less often and thought
that neighbourly support was declining.
People also thought children and old people
were being abandoned more often.
But, overall, such concerns are as great or
greater in rich countries.
The mood in emerging markets is both
unusual and consequential. To see how,
compare what is happening there with
trends in parts of the West. Americans, for
example, seem to be hankering for isola-
10
8
6
4
2
+
0
–
2
1
tionism. According to Pew’s polling, 49% of
Americans now think their country
should mind its own business internationally.
That is more than 30 points higher
than when the question was rst asked in
1964. Jim Lindsay of the Council on Foreign
Relations points out worrying parallels between
what is happening now and America’s
reaction to the Great Depression,
which sparked a period of introspection
that ended only with the second world
war. Developing countries are not suering
such anger or frustration.
That same resilience informs their attitudes
to markets. Arvind Subramanian, of
the Petersen Institute for International Economics
in Washington, DC, argues that the
recession has set o no serious questioning
of the role of the market in developing
countries. It is true that China has seen a
disproportionate rise in lending to stateowned
enterprises, but this is not necessarily
regarded with favour. China’s media
have been ooded with reports of abuses
by state rms, all featuring a newly popular,
negative-sounding term guojin mintui,
which means the state advances and the
private sector retreats.
Asked Are you better o under free
markets?, people in emerging markets are
more likely to say yes than those in rich
ones. The share of respondents who think
they are better o fell in 2009 by between
four points (Germany) and ten points
(Spain). In most emerging markets, the
share either rose (in India and China) or
stayed at (in Brazil and Turkey). No sign of
an anti-capitalist backlash there.
The combination of political stability
and popular composure has given emerging
markets what might be called policy
space in which to act. They have used it to
the fulland mostly for the better. This, in
turn, has enhanced their reputations for
economic management.
Little big spenders
At the start of 2009 falls in foreign-trade
taxes, remittances, aid, commodity prices
and capital inows all threatened developing
countries’ scal positions, and their social
spending especially. For a few, the
threat materialised: 20 countries, many in
eastern Europe, signed standby arrangements
with the IMF and tightened scal
policy. But by and large, the slash-andburn
approach to crisis management associated
with previous bouts of economic
trouble was avoided. For the rst time in a
global recession, emerging markets were
free to loosen scal policy.
Some produced big stimulus programmes.
China’s is the best known, but
Russia, Hong Kong, Kazakhstan, Malaysia,
Vietnam, Thailand, Singapore, Brazil and
Chile also unveiled large anti-crisis budgets
or counter-cyclical spending programmes.
As a share of GDP, stimulus
spending by the emerging-market mem-1

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28 Brieng Emerging markets and recession The Economist January 2nd 2010
2 bers of the G20 was larger than spending
by the rich members. In that sense, emerging
markets did more than their Western
counterparts to combat global recession.
Even countries that could not aord emergency
programmes like China’s let their scal
balances deteriorate as counter-cyclical
spending got under way. In Africa, oil importers
let their budget decits rise from
2.2% of gdp in 2008 to 6% in 2009.
By ring-fencing social spending, developing
countries managed to protect some
of their poorest people. Brazil expanded
the coverage of its assistance programme
for the poor, called Bolsa Familia, by over
1m households to 12m. India expanded to
the whole country a programme that guarantees
100 days’ employment on public
works each year to any rural household
that wants it. China’s massive stimulus
programme may have forestalled disaster
in the migrant-labour force. Half the 140m
labourers working in Chinese cities returned
home in early 2009; a fth stayed
there, and another fth could not nd
work when they returned to the cities. But
as spending on infrastructure started to
kick in, employment surged; by the middle
of the year, joblessness among rural migrant
workers was down to less than 3%.
Beyond China, fear of social unrest associated
with jobless migrants (as in 1997-98)
has not materialised. A forthcoming study
of 11 countries by Oxfam, a British NGO,
found that migrants took new jobs, often at
lower wages or with longer hours. In Vietnam
some were even given money to stay
in the cities by their families in the countrysidea
kind of reverse remittance. But
there was no mass return to the villages.
Flexibility is strength
The Oxfam study describes the myriad
ways in which countries resisted the recession.
Remittances held up better than expected.
Parents refused to take their children
out of class, or else switched them
from private to public schools. Some even
cut down on their own food to keep children
in education. There were outright job
losses in some parts of countries’ economies,
such as export sectors and mining.
But the commoner reaction to falling demand
was to cut hours and wages, reduce
benets and insist on more exible working
conditions. In other words, the main result
of the slowdown was not unemployment
(though there was some) but a move
towards more exible labour markets.
How long this can go on is unclear.
Cash-transfer and make-work schemes are
expensive: most poor countries cannot afford
them. Worse, the poorest were more
vulnerable than middle-income countries
anyway because of the food-price spike of
2007-08: hence the rise in the number of
hungry people to 1 billion, the highest gure
since 1970. In general, the informal sector
(home workers, ragpickers, street ven-
2
Miserable rich
People “satisfied with national conditions”, 2009, %
Developing countries
Rich countries
0 10 20 30 40 50
0 10 20 30 40 50
Source: Pew Global Attitudes Project
% points change 2008-09
China 87
+1
India +2
Indonesia +10
Brazil -3
Russia -27
% points change 2008-09
Germany +9
United
States
+13
France -2
Japan +2
Britain -9
dors) has been hit harder than the formal
sector and is beyond the reach of government
anti-poverty programmes. Although
developing countries have done what they
can, it would be wrong to think their people
have escaped the recession entirely.
It is worth adding that not all the actions
of developing-country governments
have been equally enlightened. Emerging
markets have been the worst sinners in a
new round of protectionism. Whether you
look at the number of new trade-damaging
measures tracked by the World Trade
Organisation, or the numbers of sectors or
trading partners hurt, Russia, China and Indonesia
are all among the top ve protectionists;
Argentina is in the top ten. Rich
countries have been slightly less destructive.
Still, as Simon Evenett, a professor of
trade at the University of Saint Gallen,
Switzerland, points out, this is not as
dreadful as it might have been, or as it was
in the 1930s. Only four countries have implemented
restrictions aecting more than
a quarter of their product lines: across-theboard
tari barriers are not the fashion.
But as growth picks up and ghts for market
share increase, these restrictions could
lay a basis for further trade disputes.
The tectonic consequence
When the Earth’s tectonic plates grind
against one another, they do not always
move smoothly; sometimes they slip. A
year after the West’s slump began to
spread to emerging markets, it has become
clear that the recession has been a moment
of tectonic slippage, a brief but powerful
acceleration in the deep-seated movement
of economic power away from rich nations
towards emerging markets.
Since 2007, according to Goldman
Sachs, the biggest emerging marketsBrazil,
Russia, India and Chinahave accounted
for 45% of global growth, almost twice
as much as in 2000-06 and three times as
much as in the 1990s. It used to be said that
although emerging markets were contributing
an expanding share of world growth,
they could not claim to be the real engine
for the global economy because nal demand
for their exports lay in America. But
that argument is weaker now that China
has overtaken America as the main market
for the goods of the smaller Asian exporters.
The recession showed that economic
power is leaching away from the West faster
than was thought.
Previous recessions have left most developing
countries with their reputations
for economic management in tatters, and
with credibility to regain in capital markets.
This time, it is the rich whose reputations
have been damaged. The scal response
of many emerging markets has
enhanced their credibility, and they nd
themselves with an unexpected reputation
for scal prudence. The debt-to-gdp
ratio of the 20 largest emerging markets is
only half that of the top 20 rich nations.
Over the next few years rich countries’
debt will rise further, so emerging markets’
indebtedness will be only one-third of
theirs by 2014. Already there are signs that
nancial markets are rewarding them for
good behaviour. Sovereign-risk spreads
have been lower in the biggest emerging
markets than in some euro-zone countries;
in 2009, Hong Kong did more initial-public
oerings than New York or London.
At the start of the crisis, a Mexican minister
sighed: At least this time it’s not our
fault. The comment was laden with sad
irony: like everyone else, he expected that
Mexico’s innocence would make no dierence
and that emerging markets would be
hammered anyway. But they have not
been. So far the story of global recession in
emerging markets has had that rarest of
themes: virtue rewarded. 7

The Americas
Álvaro Uribe’s Colombia
Not yet the promised land
Soacha
A safer and richer country, but one that needs more jobs and better socioeconomic
policiesas well as constant vigilance
WILSON VEGA used to run a small
farm near Barrancabermeja, in the
broad, tropical valley of Colombia’s Magdalena
river. He was negotiating to buy the
farm from its owner. But FARC guerrillas
began to visit. They sought to recruit his eldest
daughter, who was then aged 14. In
November 2006 the guerrillas called a
town meeting and shot ve people whom
they accused of collaborating with the
army and right-wing paramilitaries. Mr
Vega says he received glancing bullet
wounds to his head and back. That was
enough to persuade him and his wife to
gather up their seven children and ee.
Their new home is a one-room hut of
corrugated iron and board on a steep hillside
overlooking a dried-up lake bed in
Soacha, a sprawling poor suburb of Bogotá,
the capital. For this, Mr Vega pays
55,000 pesos ($27) a month in rent. He
earns around 5,500 pesos a day recycling
rubbish. As displaced people, his family
get some money from the government,
and he has bought a broken-down pickup.
If he can scrape together the cash to get it
running, he hopes to start a business selling
fruit. But he also dreams of returning to
farming in another, safer, rural area.
Mr Vega’s two dreams are shared by
many other Colombians. Creating the conditions
in which they can be realised will
be among the tasks facing the government
to be chosen in a presidential election in
May. In his two terms since 2002 Álvaro
Uribe has made Colombia less violent.
With American aid and a new wealth tax
he has expanded the security forces by
half. Better security in turn helped to boost
economic growth (see chart).
But there have been several recent security
setbacksmost dramatically the kidnapping
and murder by the FARC just before
Christmas of the governor of Caquetá
department, in the south-eastern lowlands.
Mr Uribe himself says that the improvement
in security is not yet irreversibleand
that is why he is seeking to
change the constitution to run for a third
term. Yet Juan Manuel Santos, his former
defence minister, who aspires to succeed
him (if the president does not run again
himself), is one of many politicians who
diers. Although more needs to be done
on security, he thinks this is now a less im-
Diminishing returns
Colombia
Murders per
100,000 population
80
60
40
3
* ‡ +
20
†
0
–
0
3
2002 03 04 05 06 07 08 09 10
Sources: Colombian
Ministry of Defence; IMF
GDP, % change
on a year earlier
9
6
*To November 30th
† Estimate ‡ Forecast
The Economist January 2nd 2010 29
Also in this section
30 Reforming Canada’s Senate
portant issue than the lack of decent jobs
and other socioeconomic problems.
That is a sign of Mr Uribe’s achievement.
His security build-up drove the
FARC from heavily populated central Colombia
to remoter areas. The FARC has
shrunk to less than half its 2001 peak of
20,000 ghters and has lost several of its
leaders (a dozen mid-level commanders
were killed in 2009). The government persuaded
some 30,000 right-wing paramilitaries
to demobilise. It is trying to integrate
many of them (and guerrilla deserters)
into civilian life through education and
training involving 34,000 people. In an
ambitious, if awed, attempt to secure a
modicum of justice, the attorney-general’s
oce has so far obtained confessions by
158 former paramilitaries to 4,300 crimes,
and identied some 40,000 victims who
are supposed to be compensated.
But problems persist. Urban violence
rose again in 2009: a doubling of murders
in Medellín, the second city and previously
seen as successfully pacied, is particularly
worrying. Several thousand former
paramilitaries have returned to arms in
what Mr Uribe says are criminal, drug-traf-
cking gangs. (His left-wing critics claim
they have political aims.) There are some
signs that the FARC has reorganised, relying
on landmines and snipers to demoralise
the army.
Although cocaine production has fallen
by around half since 2001, according to estimates
by the United Nations, drug money
continues to fuel the guerrillas and other
criminal gangs. It is their battles to
control territory that have uprooted people
like Mr Vega. According to CODHES, an
NGO, some 4.6m Colombians have been
displaced since 1985, and 380,000 in 2008
alone. But the government puts the overall
gure at 3m since 1959 and says the trend is
downward. A more powerful criticism is
that Mr Uribe has shown little will to help 1

30 The Americas The Economist January 2nd 2010
2 displaced people to recover their land by
reversing the land seizures by paramilitaries
over the past two decades.
The security forces have their own problems.
The attorney-general’s oce is investigating
claims (most unproven) that
the army murdered up to 1,800 civilians
and passed them o as dead rebels (a practice
dubbed false positives). When this
scandal came to light after the kidnapping
of several young men in Soacha in 2008,
Mr Uribe sacked 27 ocers, including three
generals. Army units are no longer judged
by their body count. Detectives are now
own in to investigate all deaths reported
Reforming Canada’s Senate
Adapt or die
Ottawa
Stephen Harper prods a relic
NOBODY can accuse Canadians of
haste in reforming the Senate, the
105-seat upper chamber in their Westminster-style
Parliament, modelled on
Britain’s House of Lords. Debate on
whether senators should be elected or
named by the prime minister began even
before the rst senators took their appointed
seats in 1867. It continues to this
day. The only change (in 1965) has been to
require senators to shue out of the door
when they turn 75 rather than waiting to
be carried out feet rst.
Stephen Harper, the Conservative
prime minister, wants to overhaul a body
he calls a relic of the 19th century. This
month he is expected to name Conservatives
to ll ve senate vacancies, making
his party the largest in the upper house.
Further retirements should give it a majority
before the end of the year. But to
reform the Senate Mr Harper, who leads
a minority government, needs the support
of at least one of the three opposition
parties in the House of Commons.
The two smaller parties, the New
Democrats and the Bloc Québécois,
neither of which have senators, want to
abolish what they see as an expensive,
unrepresentative body. In theory the
Liberals, the main opposition, are open to
reform. In practice they have used their
control of the Senate to stymie Mr Harper’s
eorts to achieve it. Sweeping
change would also need the support of
seven provincial governments representing
at least half of the population.
But the ten provincial premiers are divided
between abolition and reform.
Mr Harper tried a short cut in 2006,
with modest bills that would limit senators
to eight years and allow the prime
minister’s choice of appointments to be
guided by national advisory elections.
He saw this as a rst step to persuading
in combat. CINEP, a human-rights group,
found only two incidents of false positives
in the rst half of 2009. But the aair
damaged the army, and according to some
reports, has undermined its morale. Similarly
damaging have been repeated scandals
at the civilian intelligence agency,
where some ocials have been charged
with colluding with paramilitaries. The
agency is belatedly being wound up.
In security, the task of the next government
will be to consolidate Mr Uribe’s
achievement while adjusting his policies
to new threats. It’s no longer just giving orders
from the top but developing and im-
the provinces to back more radical
change. But the bills failed to gain opposition
support. So Mr Harper reversed his
earlier decision not to ll a growing
number of senate vacancies, naming 27
Conservatives in 2009.
The Senate’s defenders argue that it
works well as a revising chamber, applying
greater thought and less partisanship
to legislation than does the Commons.
Senators tend to do much of the work on
the joint committee that ensures government
regulations match underlying
legislation, an important if unexciting
job. But polls suggest that 75% of Canadians
want the Senate reformed.
Should the Liberals continue to block
Mr Harper’s reform bill, he may opt to
seek the Senate’s abolition. Canadians
understand that our Senate, as it stands
today, must either change orlike the old
upper houses of our provincesvanish,
he said when addressing the Australian
Parliament in 2007. The do-nothings have
been warned.
plementing plans to control territory and
protect the population, says a former ocial.
And Colombia now needs police on
city streets as much as troops in its jungles.
It also needs jobs, if it is to prevent its
youth joining the illegal economy of drug
gangs and armed groups. The economy
has suered only mild recession. But open
unemployment stands at 11.8%, compared
with a Latin American average of 8.3%.
Some 60% of Colombians work in the informal
economyagain, more than the regional
mean. Alejandro Gaviria, an economist
at Bogotá’s University of the Andes,
points out that there are fewer formal jobs
for people without higher education than
in 1995. Public policy has contributed to
this dismal trend. Steep payroll taxes discourage
employment. So does a minimum
wage that is disproportionately high in relation
to the country’s income levels.
Part of the blame belongs with the constitution
approved in 1991. This introduced
some welcome democratic reforms. But it
also empowered everyone and created
chaos, as Roberto Steiner of Fedesarrollo,
a think-tank, puts it. Much social and economic
policy is now dictated by the judiciary.
Court decisions have helped to
bankrupt the national health-insurance
system, only 45% of whose members now
pay full contributions. That obliged the
government to announce emergency nancing
measures last month.
Sluggish recovery
But Mr Uribe has himself undermined the
tax system, decreeing tax breaks for favoured
companies and then making these
permanent through tax stability contracts.
He defends these as necessary to attract
investment. Guillermo Perry, a former
nance minister, argues that this would
have come anyway because of better security
and high commodity prices.
These problems may weigh heavily in
the coming years. The economy is recovering
more slowly than others in the region.
Half of Colombia’s exports went to the
United States and Venezuela in 2008: but
American demand remains sluggish and
Venezuela’s government has imposed
trade sanctions on Colombia in protest at a
recent defence co-operation agreement between
Mr Uribe and the United States.
Back in 2002 Colombia was in serious
danger of becoming a failed state. Millions
of its brightest citizens had migrated
abroad. Travellers on the roads between its
main cities risked being kidnapped or
killed. It is a tribute to Mr Uribe that today’s
problems look so much more manageable.
He points out that younger Colombians
haven’t known a single day of peace. He
insists the country needs to stick to his policies
without stagnation or sudden
swerves. Yet his growing number of opponents
argue that progress cannot continue
unless there is a change at the top. 7

Asia
Harsh justice in China
Don’t mess with us
Beijing
No forgiveness; no quarter. Happy Christmas
ASEASON of good cheer in much of the
world, late December saw a typically
harsh apportionment of justice by China’s
legal system, and a typically rigid display
of governmental indierence to foreign
opinion. On Christmas Day a Beijing court
sentenced Liu Xiaobo, a veteran humanrights
activist, to 11 years in prison for inciting
subversion of state power. China
swatted away all criticism about this as
groundless meddling in its internal aairs.
In a separate case that was not entirely
an internal aair, China’s reaction was not
much dierent. On December 21st Akmal
Shaikh, a 53-year-old Briton charged with
smuggling drugs, had his death sentence
upheld by China’s Supreme People’s
Court. Rejecting pleas for clemency from
Mr Shaikh’s family, international humanrights
groups, and the British government,
Chinese authorities executed him by lethal
injection on December 29th in the northwestern
region of Xinjiang, where he was
rst arrested in late 2007 after carrying
roughly 4kg of heroin into the country.
Family members claimed Mr Shaikh
suered from bipolar disorder, and was
the victim of manipulation by the drugs
trackers who, they claimed, tricked him
into carrying the contraband. British ocials
announced news of the execution before
China did. Hours after it took place
China’s foreign-ministry spokeswoman,
Jiang Yu, said it would brook no outside interference
in the workings of its legal sys-
tem, and expressed strong dissatisfaction
and resolute opposition to Britain’s complaints.
The prime minister, Gordon
Brown had said he was appalled and
condemned the execution in the strongest
terms. Ms Jiang said Mr Shaikh’s case was
handled appropriately and all his legal
rights had been honoured at trial. A day
after the execution, Chinese newspapers
were full of angry commentary over Britain’s
attempt to intervene. Many drew
comparisons to the Opium War.
Although it ended in the rst known execution
of a European in China since the
1950s, Mr Shaikh’s case was otherwise not
unusual. According to available (and incomplete)
statistics, China executed 1,700
convicts in 2008, or nearly ve each day.
Neither was the harsh treatment meted
out to Mr Liu unusual by Chinese standards.
Criticism of the government,
though always risky, is sometimes tolerated.
Attempts to organise criticism, however,
as Mr Liu had by helping draft a petition
calling for political freedoms, are
routinely met with a rm thumping. Jailed
twice before for his political activities Mr
Liu knew this as well as anyone. He had
said he was ready to face prison again.
The document he helped write in December
2008 was called Charter 08. It soon
attracted more than 300 other Chinese signatures.
Its publication marked the 60th
anniversary of the Universal Declaration
of Human Rights. In the year since its re-
The Economist January 2nd 2010 31
Also in this section
32 Taiwan and China talk trade
32 Laotian Hmong refugees in Thailand
33 Sri Lanka’s displaced Tamils
33 Gunning for Pakistan’s president
Banyan is back next week
lease, thousands more have signed it.
Charter 08 calls for sweeping changes
in China’s political order, including an end
to limits on free expression, political activity
and religious practice. It proposes drastic
reforms that would dismantle one-party
rule, allow public supervision of government
ocials, and free the army and judiciary
from Communist Party control.
Mr Liu was detained just before the release
of the manifesto and held for six
months before charges were lodged. His
sentencing came two days after a trial lasting
less than three hours. The 11-year term
exceeds any other known sentence for the
vague crime of inciting subversion.
Within days of the sentencing, Chinese
media published a speech by a senior security
ocial who warned of threats to
China’s social stability from hostile forces
stirring up chaos and called for pre-emptive
attacks against them. In the new
year, there will be no relaxation of stability
preservation, and no lightening of pressure
on stability, said Yang Huanning, a
deputy minister of public security.
Mr Liu won supporters on the internet,
a central theatre these days in the struggle
for civil liberties. The authorities are moving
to tighten their control there. Besides
stepping up monitoring and blocking unsuitable
web trac, regulators have put
new restrictions on the registration and operation
of websites by individuals.
The founder of a web-hosting service
in Beijing says that internet servers have
been unceremoniously unplugged under
new rules and new standards of enforcement.
For nine years I have run a successful
and legal business, and now I have suddenly
been told that what I do makes me a
criminal. Worried that his company may
not survive, and angry about the arbitrary
changes, he will not, however, circulate a
protest petitionnot if he is wise, that is. 7

32 Asia The Economist January 2nd 2010
Taiwan and China
Strait talking
Taichung, Taiwan
Progress in talks with China is a mixed
blessing for Ma Ying-jeou
RELATIONS between Taiwan and China
may be better than at any time since
Nationalist forces routed in China’s civil
war ed for Taiwan in 1949. But not everyone
is cheering. Chen Yunlin, China’s most
senior Taiwan negotiator, visited Taichung
in central Taiwan in December to sign
three technical accords (covering co-operation
on shing, industrial standards and
the quarantine of agricultural products).
But public support in Taiwan for President
Ma Ying-jeou’s China-friendly policies
seems to be eroding.
The opposition Democratic Progressive
Party (dpp) claimed 100,000 people had
joined its protest rally on December 20th.
(The police estimated 30,000.) They condemned
the pact the government wants to
sign with China, formally known as the
Economic Co-operation Framework
Agreement, or ECFA, saying it would cause
thousands of job losses and lead to an in-
ux of cheap Chinese goods. Mr Chen was
dogged by protesters, albeit in far smaller
numbers than on his rst visit in November
2008. In the worst scue, a policeman
was badly hurt and six people detained.
Mr Chen and his Taiwanese counterpart,
Chiang Pin-kun, agreed they would
negotiate ECFA at a summit in China in the
rst half of 2010. Mr Ma hopes it will be
signed then, but Chinese negotiators
would not promise this.
ECFA is the cornerstone of Mr Ma’s
cross-strait policies but he has provided
scant details. It is born out of his fear that
Taiwan, already ravaged by the nancial
crisis, will be marginalised as a free-trade
pact between China and the Association
of South-East Asian Nations (ASEAN) takes
eect this January. China puts pressure on
other countries not to sign free-trade agree-
Trade winds
China’s trade with Taiwan, $bn
25
+
0
–
25
Exports
Imports
75
100
125
1990 95 2000 05 09*
50
Source: CEIC *January-November
ments with Taiwan. Mr Ma hopes that will
change once Taiwan and China have their
agreement, although there are no guarantees.
Singapore is expected to be rst.
Even disregarding other markets, however,
China’s are attractive enough. Taiwan’s
exports face taris ranging from 5%
to 15% in China. ECFA is expected to call for
immediate liberalisation of some goods.
Ocials say they are likely to include products
most vulnerable to ASEAN competition,
such as textiles, automotive parts and
petrochemicals, along with some services.
China’s long-term goal is political unication.
It does not entirely trust Mr Ma,
who says this will not happen during his
presidency, but much prefers him to the
pro-independence DPP. It hopes that help-
Laotian Hmong refugees in Thailand
Shown the door
ARELATIVELY peaceful haven in a bad
neighbourhood, Thailand has taken
in hordes of South-East Asians eeing
war, persecution and poverty. But the
welcome is wearing thin. This week the
Thai army loaded 4,351ethnic Hmong
onto lorries and drove them to the border
with Laos, whence they had ed. None
was allowed access to United Nations
ocials, who might have classied them
as refugees deserving protection and
eventual resettlement. Yet Thai ocials
called their eviction voluntary.
Recruited by the CIA to ght in the
1960s, the Hmong were among the losers
in the Vietnam war. Hundreds of thousands
ed Laos after the Communist
victory in 1975 and eventually moved to
America. In 2004 America agreed to take
in another 14,000 or so Hmong who had
been staying at a Thai temple. Those
bundled back to Laos this week had
drifted to another makeshift camp in
Phetchabun province, hoping to claim
international asylum. A separate group
of 158 refugees were deported from a
detention centre on the border.
A barrage of American, EU and UN
criticism failed to stop the expulsion.
António Guterres, the UN High Commissioner
for Refugees, said the repatriation
would set a very grave international
example. Human-rights groups say the
Hmong may face persecution in Laos and
that their forced return violates international
law. Those linked to ragtag Hmong
rebels in remote mountain areas are
deemed particularly vulnerable.
Laos has insisted that all who return
will be resettled peacefully. It denies
discriminating against the Hmong, one
of dozens of minorities in a poor, land-
ing Mr Ma in the economic talks will both
generate public goodwill towards China,
and boost his chances of re-election. But
Mr Ma himself faces a dilemma. He is in a
rush to sign ECFA. But the public is not yet
feeling the benets of the nine past agreements
signed with China. The few thousand
Chinese tourists who come every
day are making little economic impact.
Moreover, the DPP fared well in local
elections in early December, when it won
45.5% of votes compared with 47.9% for Mr
Ma’s ruling Kuomintang, the KMT, a far cry
from the 58.5% Mr Ma achieved in the presidential
election in May 2008. That means
Mr Ma may feel electoral pressure to go
slow on ECFA. He will certainly have to do
a better job of selling it at home. 7
Bangkok
Its hospitality exhausted, Thailand sends refugees back to an uncertain future
locked country. But Thailand’s refusal to
grant the UNHCR access to the camp
makes it unknowable how many had
genuine fears of persecution and how
many were merely economic migrants.
Thailand’s prime minister, Abhisit
Vejjajiva, came to power a year ago promising
to restore the rule of law. That
pledge does not seem to extend to refugees.
Last January the Thai army was
revealed to have pushed back hundreds
of Rohingya Muslim boat people from
Myanmar who then drowned or went
missing at sea.
For Hmong insurgents in Laos, relief
may ultimately come from California,
from where an exiled former leader, Vang
Pao, occasionally plots armed revolution
at home. Now 80, Vang Pao said recently
that he wants to go home to make peace
with his Communist foes. Nearly 35 years
after the fall of Saigon, America’s Indochina
war is not over yet.

The Economist January 2nd 2010 Asia 33
Sri Lanka’s displaced Tamils
A market-based
solution
Vavuniya
Eking a living from handouts
SQUATTING under an umbrella bearing
an EU logo, a woman in a faded sari dips
into her blue UNICEF bag and pulls out
two towels, some toothbrushes and toothpaste,
sanitary napkins and a small bottle
of disinfectant. She is soon ringed by hagglers
wanting her paltry wares for even
less than the pittance she asks. Another
woman clambers from a bus lugging a sack
of our donated by the World Food Programme.
She jostles for space among the
throngs of internally displaced Tamils peddling
their rations near the hospital in Vavuniya
in the north of Sri Lanka. Just
months ago, many of them were treated
here for injuries sustained as the Sri Lankan
army defeated Tamil Tiger rebels.
After the rout of the Tigers in May, nearly
300,000 Tamils who ed the ghting
were fenced inside sprawling camps near
Vavuniya. After concerted foreign pressure
the government opened the camps on December
1st. It was also swayed by the need
for Tamil votes in the hotly contested presidential
election to be held on January 26th.
Almost at once dozens of displaced civilians
started taking their staple dry rations
to town. They sell lentils, wheat-
our, parboiled rice, curry powders, chickpeas
and toiletries. There are mosquito
nets and cloth nappies, tea, slippers and
even a vegetable grater. Traders are arriv-
Show him the way to go home
ing from other parts of the country. Prices
are at wholesale levels or below, and one
says she had heard she could get things
cheap for her grocery shop. Some of the
poorer camp inmates make money from
occasional odd jobs and manual labour.
But there is too little work to go around. So
selling the rations seems the natural thing
to donot, one adds earnestly, that they are
given too much. Rather, it is the only way to
earn money to pay for other needs.
Vavuniya may soon lose its pavement
hawkers, however. President Mahinda Rajapaksa
has promised to resettle all displaced
civilians in their home villages by
January 31st. His main electoral challenger
is his former army commander, Sarath
Fonseka. They will split the vote of the Sinhalese
majority. So both need to court minorities,
notably the Tamils.
Pakistan’s embattled president
Peccavi
EVER since pressure from the public and
the army forced President Asif Zardari
to reinstate Iftikhar Mohammad Chaudhry
as Pakistan’s chief justice in March, he
has looked rattled. Now he sounds almost
unhinged. On December 27th, the second
anniversary of the murder of his wife, Benazir
Bhutto, a former prime minister, he
accused non-state actors of wanting to
break up Pakistan by pitting state institutions
against each other.
He meant press commentary claiming
that he is at odds with the powerful army
over foreign policy and that his Pakistan
People’s Party (PPP) government is tussling
with the judiciary. He said the press had
been giving dates for his downfall, but
that he would not ee the country as predicted
by his enemies. I will stay in the
presidency or go to jail, he thundered.
The undignied outburst came at
Naudero in Sindh province, the burial site
of his wife and her similarly martyred father
Zulkar Ali Bhutto. Of late Mr Zardari
has been playing the Sindh card by
whipping up sub-nationalist sentiment
against the anti-PPP conspiracies
hatched in the dominant province, Punjab.
Mr Zardari has looked vulnerable since
December 16th, when the Supreme Court
struck down the National Reconciliation
Ordinance (NRO) promulgated by the previous
president, Pervez Musharraf, in October
2007. This had aorded Mr Zardari
and other PPP leaders amnesty from criminal
proceedings in corruption cases.
Overnight, facing a clamour of resigna-
U.L.M. Haldeen, of the Ministry of Resettlement,
says hundreds of families have
already been taken back to their villages
and given tin roong sheets, a cash grant
and cooking utensils to help them rebuild
their lives. He says only 101,113 of the
300,000 remain in camps, and denies allegations
that the displaced are being quietly
moved into other temporary housing, as
the government ounders around in
search of a coherent resettlement plan.
Many of the displaced show no interest
in the election. One says he will vote, but
only because it means he can visit his village.
Another stares back blankly when
asked if she knows the candidates. No
idea, she says, distracted by a uniformed
policeman who wants to buy a mosquito
net. His small change matters more than
the would-be presidents’ promises. 7
Lahore
Just because Zardari sounds paranoid does not mean they are not out to get him
tion calls, senior government ministers
had to scurry to the courts for bail before
they were arrested. Mr Zardari enjoys presidential
immunity from criminal, but not
civil, action. The court’s judgment relies on
hitherto unused Islamic provisions of the
constitution to declare the NRO immoral.
Similar devices may be used when the
court starts hearing civil petitions to unseat
Mr Zardari for moral turpitude.
Earlier, the government’s lawyer in the
NRO case made the astonishing claim that
army headquarters and the CIA were conspiring
against the PPP government. Following
an uproar, he retracted his comment.
But senior army ocers do not hide
their contempt for Mr Zardari and America
doubts the value of lending support to an
increasingly isolated president.
Mr Zardari angered the army when, at
America’s urging, he tried to tame its inuential
Inter-Services Intelligence agency, or
ISI. The army was also infuriated by American
legislation passed in October promising
$7.5 billion in assistance to Pakistan.
This insists on civilian control of the army,
a condition the army suspects was inserted
at the behest of the Zardari government.
The coming weeks are critical for Mr
Zardari. The court will be mulling petitions
seeking his removal as president. So he
will face pressure to mend fences with the
opposition, by repealing the constitutional
amendment that strengthens the presidency
and empowers him to re service chiefs
and dismiss governments. But even that
concession may be too little, too late. 7

Middle East and Africa
34 The Economist January 2nd 2010
Iran’s turmoil
Growing signs of desperation
The latest bout of increasingly erce repression suggests that the Islamist regime
has begun to fear for its future
WHAT more can Iran’s ruthless rulers
do to squash their opponents? Since
nationwide protests broke out last June
over the disputed results of presidential
elections, the ocial winner, Mahmoud
Ahmadinejad, has pulled few punches.
His security apparatus has beaten and arrested
thousands, tried scores of dissidents
in kangaroo courts, hounded others into
exile, throttled the press and jammed the
airwaves. But the massive and violent demonstrations
that engulfed the capital,
Tehran, and other cities on December 26th
and 27th suggested that repression only
deepens and broadens the opposition.
Footage of the protests, shot by mobile
phones and spread via the internet, revealed
scenes of mayhem unprecedented
since the 1979 revolution that toppled the
shah. Mobs of youths, including many
women, attacked and in some cases overcame
squads of riot police. The rioters,
mostly unmasked in contrast to previous
protests, apparently chanted as many slogans
against Iran’s supreme leader, Ayatollah
Ali Khamenei, as against Mr Ahmadinejad.
They set police vehicles on re and
torched at least one police station. Plainclothes
government thugs fought back,
bludgeoning isolated protesters and apparently
shooting several at close range.
State television at rst said 15 people
were killed, a gure later reduced to eight,
including a nephew of Mir Hosein Mousavi,
a former prime minister widely
thought to have truly won the June election;
he has become an opposition gurehead.
Some opposition sources say the
nephew was targeted as a warning to Mr
Mousavi. Kayhan, a newspaper that echoes
hardline views, countered with the
charge that Mr Mousavi had himself orchestrated
his nephew’s shooting.
The violence was particularly shocking
since the protests coincided with Ashura, a
solemn day in the Shia calendar that commemorates
the martyrdom of Hosein, a
grandson of the Prophet Muhammad. Re-
ecting Iran’s stark polarisation, government
supporters and opponents accused
each other of desecrating Hosein’s memory.
Reecting a fear of generating new
martyrs to fuel further protests, security
forces took over Tehran’s cemeteries and
nabbed the bodies of some of those killed,
preventing their immediate burial in accordance
with Muslim rites.
State news agencies say police arrested
more than 1,000 protesters during the riots.
Dozens more campaigners have been
jailed in a dramatic widening of the purge
against reformists that began in June. They
include such luminaries as the 78-year-old
Ebrahim Yazdi, the Islamic Republic’s rst
foreign minister and now head of a
banned liberal party, as well as numerous
Also in this section
35 Yemen’s multiple wars
36 Ghana’s dangerously oil-rich future
36 East Africa’s hopeful common market
close relations of prominent dissidents, including
a sister of Shirin Ebadi, a Nobel
laureate and human-rights lawyer. This
tactic has often been used in Iran to frighten
prominent people, without stoking
more public anger by detaining them directly.
So far the authorities have refrained
from arresting such gures as Mr Mousavi
himself, but a new wave of arrests has
swept up many of their close associates.
As in the past, conservatives have
blamed foreign powers for stirring up the
protests. Yet with the clashes persisting despite
Iran’s isolation from the outside
world, this charge is carrying ever less
weight with the people. On the contrary,
the government’s tactics, along with Mr
Khamenei’s silence and the increasingly
ungloved intervention of the Revolutionary
Guards, the elite military corps that
commands the plain-clothes baseej militia
used for crowd control, may reect a growing
sense of desperation.
Signs of the regime’s fading legitimacy
are numerous. In December, for instance,
the head of Iran’s central bank issued a
stern warning that from January 8th it
would no longer accept bank notes defaced
by extra words. In practice, this
would mean taking millions of notes out
of circulation, following a quiet campaign
by oppositionists to mark them with antiregime
slogans.
Funereal opportunities
More embarrassing still for a regime that
describes itself as Islamic is the government’s
treatment of dissident clerics, including
some prominent ayatollahs. The
most senior was Grand Ayatollah Hosein
Ali Montazeri, a condant of the Islamic
Republic’s founding father, Ayatollah Ruhollah
Khomeini, with whom he fell out of1

The Economist January 2nd 2010 Middle East and Africa 35
2 favour shortly before the old man’s death
in 1989. Placed under house arrest for a decade,
Mr Montazeri continued to criticise
the government, siding openly with the reformists
after the tainted June elections.
Despite his isolation, Mr Montazeri remained
popular, so his death on December
20th was yet another occasion for protest.
Rather than risk demonstrations, the
government saturated his funeral with baseej
agents and banned memorial rites
elsewhere, sparking clashes in several cities.
More recently baseej forces have ringed
the homes of two other prominent dissident
ayatollahs in a blunt eort to block
them from becoming a focus for protest.
Perhaps worse yet for Iran’s government,
its troubles at home have crippled its
STRUGGLING to fend o many threats,
Yemen’s government has looked increasingly
beleaguered. Yet over the past
few weeks it has taken the initiative, scoring
what amounts to a hat trick. In concert
with neighbouring Saudi Arabia, Yemen’s
air force has hammered rebellious tribesmen
in the north. Some reports claim that
the leader of the uprising, Abdul Malik al-
Houthi, was among those who have been
killed. Security forces have also raided al-
Qaeda targets in the south and centre of
the country, killing several commanders
and arresting others, in their most sustained
oensive yet against the jihadists.
That campaign parried a third dangerous
challenge. Foreign donors have grumbled
that their crucial support for the government
has not been matched by action,
even as evidence accumulates that Yemen’s
rugged fringes have become a secure
base for jihadist terrorism. Umar Farouk
Abdulmutallab, the Nigerian student
who tried to down an American airliner
with explosive underpants on Christmas
Day, had been in Yemen since August. Al-
Qaeda’s local aliate claimed responsibility
for his failed attack.
Yet in the context of Yemen’s complex
politics, all these apparent gains come
with caveats. Despite the army’s superior
repower and help from the far betterarmed
Saudis, little headway appears to
have been made on the ground in the
north. The Houthi rebels, an alliance of
tribesmen who complain of state neglect
and discrimination against the minority
Zaydi Shia sect, have pressed their claims
in a bitter, ve-year-long guerrilla war that
foreign policy, at a time when it faces rising
pressure to curb its controversial nuclear
programme. Western countries that had
shied from too strong a condemnation of
Iran’s human-rights record, for fear of empowering
the more extreme nationalists
and threatening nuclear diplomacy, are
losing patience. Even the pragmatists
among Iran’s friends, such as Russia and
China, now fear their longer-term and potentially
lucrative interests in Iran may be
hurt by too close an embrace of the regime.
If they refuse to vote against tougher sanctions
expected to be proposed soon against
Iran at the UN Security Council, even
Messrs Ahmadinejad and Khamenei may
start to fear that their days in power may
be numbered. 7
Yemen’s multiple wars
A growing worry for the West
Cairo
A tribal rebellion in the north and al-Qaeda elsewhere are jangling nerves
An al-Qaeda man preaches Yemeni jihad
has generated more than 175,000 refugees.
The involvement of Saudi Arabia, a regional
Sunni power whose dominance Yemenis
tend to resent, simply adds to their
grievances. Some Yemeni commentators,
meanwhile, worry that a mooted ceasere,
whose terms Mr Houthi had apparently
agreed on, could be postponed by his asyet-unconrmed
demise. Others in the region
fear that the Saudi intervention may
draw the Iranians indirectly into the fray;
they have already been accused, so far
without independent corroboration, of
arming and nancing the Houthis.
Clobbering the jihadists
Bolder action against al-Qaeda may, however,
have produced more solid gains. The
government claims that ve separate raids,
including air attacks on December 17th
against an alleged training camp in Abyan
province and others on December 22nd
and 24th that targeted jihadist conclaves in
Shabwa province, have killed at least 60
ghters. Its says a further 29 are now in custody,
including members of a suicide cell
that had planned to hit the British embassy.
Several of the alleged al-Qaeda people
killed in the bombing raids belonged to the
Awlaki tribe, so were kinsmen of Anwar
al-Awlaki, a fugitive American-born Yemeni
preacher who is accused of inspiring a
killing spree by a Muslim American major
in Texas in November.
These are big blows to al-Qaeda, considering
that Yemen itself has, by the government’s
own tally, suered some 61 al-
Qaeda attacks since 1992. Until recently, the
state had shied from all-out conict with
the jihadists, adopting instead a carrotand-stick
approach that created such embarrassments
as the suspiciously easy escape
of 23 al-Qaeda convicts from a maximum-security
prison in 2006. But early
last year the group’s Saudi branch, many
of whose members had ed to safety in Yemen,
formally accepted Yemeni leadership
under a new name: al-Qaeda in the Arabian
Peninsula. Since then it has launched
numerous small-scale attacks against Yemeni
security forces and has struck in Saudi
Arabia too. And it appears to have secured
tribal protection as well as some
political backing from groups in southern
Yemen which demand a repartition of the
country, which was formed from two
chunks in 1990.
Yet though the oensive against al-
Qaeda shows a new determination, it also
carries risks. America has admitted to providing
only intelligence and logistical support
for the bombing raids. But local witnesses
say they have also sighted American
drone aircraft or cruise missiles. As in
Pakistan, reports of foreign interference anger
many locals, particularly since women
and children were among the victims of
the Abyan raid. The south of the country,
which contains oil and gas, is already
roiled by unrest. So further ghting against
al-Qaeda could provoke a wider civil con-
ict, which in turn could undermine a regime
that has rattled many of its own people
by throwing in its lot with the West. 7

36 Middle East and Africa The Economist January 2nd 2010
Ghana and its oil
Dangerously
hopeful
accra
Can one of Africa’s best-governed
countries beat the curse of black gold?
AT AGBOGBLOSHIE market in Accra,
Ghana’s capital, Rose Kamina struggles
to sell T-shirts in the stiing heat.
Business is small-small, says the 22-yearold
wearily. This year we could only afford
fowl for Christmas. Then, unexpectedly,
her face brightens a little. But maybe
next year we will buy a goat.
As Ghana prepares to pump oil in the
second half of 2010, hopes are rising, both
among hard-pressed market traders at
home and in the far-ung diaspora, where
Ghanaians are quitting jobs in American
banks to head back to an optimistic homeland.
Oil was found o Ghana’s coast in
2007 and, even without further discoveries,
is now expected to earn an average of
$1.2 billion in annual state revenues for almost
two decades. For a country with 23m
people and a GDP of $16 billion, it could be
a big boostor a crippling blight.
Perky economic growth, a decent human-rights
record and two consecutive
changes of government by the ballot box
have made Ghana one of the past decade’s
success stories in Africa. In 2009 it won the
accolade of being sub-Saharan Africa’s
only country to be visited by Barack
Obama as president. Yet some people worry
that it could slip back into its corrupt and
violent ways once the oil begins to ow:
witness other countries in the region, such
as huge Nigeria and tiny Equatorial Guinea,
where cliques of big men have stolen
stacks of bounteous oil money while most
of the people have been left to live in poverty.
This is the curse of black gold.
Ghana still has a good chance of getting
it right. Unlike many of its neighbours,
Ghana has struck oil under democracy. Its
ocials entrusted with drawing up legislation
have been scrutinising oil-revenue
laws from Norway to Trinidad and Timor-
Leste. A draft bill proposes that part of the
oil money should go directly into the national
budget, with the rest split between a
stabilisation fund to support the budget
if oil prices drop and a heritage fund to
be spent only when the oil starts to run out.
Putting the money into ring-fenced funds
should prevent a free-for-all among politicians
and the corruption that could ensue.
But there are countervailing pressures.
President John Atta Mills, who took oce a
year ago after a tense election won by less
than half a percentage point, inherited a
scal decit of 14.5%, almost two-thirds
more than the previous year’s. The former
ruling party, it transpired, had embarked
East Africa’s common market
It really may happen
Kigali
The region’s leaders take another step towards building a common market
FREE-TRADE ngers crossed, some
time this summer goods should start
being sold without taris across borders
within the ve countries of the East
African Community (EAC). The new
common market will take in 130m-plus
people in Burundi, Kenya, Rwanda,
Tanzania and Uganda. The next step is
monetary union, with political federation
a far remoter prospect. The agreement
signed last year at the EAC’s headquarters
in the Tanzanian city of Arusha
was a rst step. Optimists say the EAC
should join free-trade blocks in southern
and western Africa before 2030.
The EAC is working o a small base.
Its combined GDP of $75 billion is a sixth
of Belgium’s. But scrapping taris should
boost regional trade and improve competitiveness.
The EAC should be better
placed to trade with Congo, Ethiopia and
Sudan. And if it can build its own wider
manufacturing base, its goods may start
to compete with cheap stu from China.
Kenya, which has the region’s strongest
manufacturers, retailers and banks,
is sure to gain most. But for the EAC to
succeed, others must win too. Rwanda
and Burundi should benet from cheap-
on a pre-election spending spree to woo
voters. Because of Ghana’s recent record of
good management, donors have helped
out: the World Bank tripled direct assistance
in 2009 and the IMF has agreed to
lend $600m over three years. But Mr Mills
has still had to cut spending, with a partial
freeze on hiring in the public sector, the biggest
employer. And the opposition says the
government is creating mistrust by spending
too much time weeding out civil servants
close to the previous administration
rather than preparing for petroleum.
None of this is endearing Mr Mills to
the electorate. After an austere year the
government may yet be tempted to blow
its early oil revenues on restoring popularity.
That would set a dangerous precedent; it
would also be a lot easier if the government
was not restricted by laws to stop it.
For all the ne talk of heritage funds, the oil
bills are behind schedule; none has yet
been put to Parliament. If you get the revenues
before the laws, it will be very grey,
warns Moses Asaga, a member of the ruling
National Democratic Congress who
chairs Parliament’s energy and mining
subcommittee. Everybody will be struggling
for the money.
So decisions taken this year will strongly
aect Ghana’s future. With proven re-
er and quicker transport of goods to and
from the ports of Mombasa and Dar es
Salaam. Uganda is well placed to expand
its agriculture for export.
Tanzania is less certain to gain. It
wants to keep some taxes on goods from
Kenya. And it is wary of the free movement
of labour, fearing that, in many
professions, pushier and better-educated
Kenyans will come and snatch plum jobs.
Faustin Mbundu, a Rwandan who
chairs the East African Business Council,
says the real benets of the common
market will accrue only with more and
better roads, railways and power stations.
Some say a new capital for the EAC
must be built from scratch, perhaps on a
shore of Lake Victoria, with a new international
airport to match Nairobi’s.
But simpler things will be needed a lot
sooner. For instance, border crossings
will have to be kept open at night. Mr
Mbundu wants to end the scourge of
informal police checkpoints. Above all,
the governments will have to avoid
policy reversals that pander to their own
industries, a tendency that has hitherto
stood in the way of a proper common
market.
Oil isn’t everything
serves of just 1.2 billion barrels of crude
(against Nigeria’s 36 billion), Ghana’s
windfall may last only a generation. As Joe
Amoako-Tuour, a senior ocial working
on the oil laws, puts it: We must decide
how many of these eggs to eat today and
how many to keep and hatch into chickens.
But we are a poor country and we are
hungry. The temptation is to eat now. 7

Europe
Germany’s fractious government
Angela Merkel’s wobbly restart
BERLIN
Coalition squabbles and a row over Afghanistan have made the beginning of
Angela Merkel’s second term as chancellor shaky
EVEN its supporters cannot claim that
Germany’s centre-right government
has got o to an impressive start. Since the
coalition of Angela Merkel’s Christian
Democrats (CDU) with Guido Westerwelle’s
Free Democrats (FDP) took oce in
late October, a row over Afghanistan has
toppled one minister and engulfed a second;
the government has enacted tax cuts
nobody seems to want; and it has feuded
bitterly over a minor appointment to a museum.
Ms Merkel, the supposed climate
chancellor, failed to rescue the planet in
Copenhagen (see page 43). Her Christmas
holiday, mostly spent cross-country skiing,
must have come as a relief.
Ms Merkel’s main legislative achievement
is a growth acceleration law that
has drawn ridicule from economists and
split the CDU but left voters cold. The economists
expect little acceleration from 8.5
billion ($12 billion) of tax cuts that include
relief for families, much of which will be
saved, plus a cut in value-added tax for hotel
stays. Without spending reductions or
other revenue rises, such cuts are unserious,
complained the ocial committee of
economic wise men. Only a fth of voters
want them, says Forsa, a pollster. CDU premiers
from cash-strapped states hate giveaways
that eat into their own revenues.
The government’s shaky start suggests
that the black-yellow coalition (consisting
formally of the CDU and its Bavarian
sister party, the Christian Social Union,
along with the FDP) was never the dream
team that Ms Merkel claimed ahead of
September’s federal election. The FDP
spent 11 years in opposition agitating for
tax cuts and could not relent once in power.
It also had the support of the CSU. But
these two smaller parties have been at loggerheads
over a new museum for refugees.
The CSU wants a seat on the advisory
board to go to a controversial leader of ethnic
Germans expelled after the war by Poland
and Czechoslovakia, because their
descendants are a key voting group in Bavaria.
But Mr Westerwelle, who as foreign
minister has made much of good relations
with Poland, says no.
In many ways, some in the CDU are
muttering, life was easier in the grand coalition
with the Social Democratic Party
(SPD) that ruled with a big majority until
October. The CDU and SPD may be ideological
and political foes, but both are
broad-based people’s parties that understand
the responsibilities of oce. The FDP
needs to grow up, some grumble.
Afghan angst
Ms Merkel got her tax cuts through both
houses mainly by promising extra aid to
the states. Her troubles over Afghanistan
will not be so easy to settle. They began in
September with a NATO airstrike called by
a German colonel against a group of Taliban
who had hijacked two fuel trucks in
Kunduz. Franz Josef Jung, then defence
The Economist January 2nd 2010 37
Also in this section
38 Turkey and its generals
38 The Balkans and the European Union
39 An autonomous Vojvodina
Charlemagne is back next week
Europe.view, our online column on eastern
Europe, appears on Economist.com on
Thursdays. The columns can be viewed at
Economist.com/europeview
minister, initially denied that any civilians
were killed. He was forced to resign as labour
minister in November when it became
clear that the defence ministry knew
early on that many of the 142 casualties
were civilian. The new defence minister,
Karl-Theodor zu Guttenberg, then sacked
the most senior general, Wolfgang Schneiderhan,
and a top bureaucrat for failing to
inform him fully. But General Schneiderhan
has, in eect, called Mr zu Guttenberg
a liar. A parliamentary committee plans to
summon all those concerned, probably including
Ms Merkel.
This adds up to an ugly blemish on a
promising debut. Young, charismatic and
with a reputation for straight talk, Mr zu
Guttenberg had bonded well with the
troops and told voters bluntly that they
faced warlike conditions in Afghanistan,
which counts as daring candour in a country
that still sees itself as exempt from warfare.
The Kunduz ap will make it harder
for Germany to back NATO’s surge in Afghanistan
with more troops. Mr zu Guttenberg
has not ruled this out, though he has
lately sounded less bellicose by calling for
negotiations with moderate Taliban leaders
and talking of a date for withdrawal.
He may yet bounce back. Many soldiers
think General Schneiderhan went too far
in questioning the minister’s honesty; and
they like the new army chief. In the long
run, argues Jan Techau of the German
Council on Foreign Relations, the Kunduz
aair may even help the country to come
to terms with its military obligations. The
politicians have allowed an escalation of
Germany’s military role abroad but done
their best to disguise it. If Mr zu Guttenberg
survives, the Kunduz incident will pave
the way for a new kind of language,
hopes Mr Techau.
Ms Merkel could use a fresh start herself.
She wants to shift from the economic- 1

38 Europe The Economist January 2nd 2010
2 recovery phase of her second term, of
which tax cuts are a big part, to sustainability,
her label for various initiatives
ranging from promotion of green industry
to more investment in education. This last
includes more money for education in early
childhood, especially for immigrants,
and expanding university scholarships. A
greying population will also be encouraged
to save more for long-term care. There
are ambitious if vague plans to sharpen
competition in health care and shift some
of the costs from employers to the insured.
Yet the sustainability agenda may not
advance much more smoothly than the recovery
one. The FDP and CSU disagree
over health-care reforms. Ms Merkel has
yielded to a CSU demand for a subsidy to
mothers who stay at home, to go with an
expansion of state-nanced child-care.
Critics, including some in the FDP, worry
that stay-at-home children will be those
who most need to get out of the house.
More tax cuts are also promised for 2011,
which may also mean more internal
squabbling. Nobody knows how to reconcile
them not only with higher spending
on education but also with a new constitutional
obligation to cut the federal government’s
budget decit almost to zero by
2016. Wolfgang Schäuble, the steely nance
minister, promises to raise taxes or
cut other spending if need be.
He is unlikely to be more specic until
after a state election in North Rhine-Westphalia,
Germany’s most populous state, in
May. Its black-yellow coalition is up for reelection.
If it loses, the government would
surrender its majority in the upper-house,
the Bundesrat. But if it wins, that could give
Ms Merkel a new zing and greater room for
manoeuvre in Berlin. She has not veered
wholly o-courseyet. 7
Turkey and its generals
These cursed plots
ISTANBUL
The latest episodes in various alleged
conspiracies against the government
IT HAS been a rotten year for Turkey’s generals.
A series of leaked documents,
tapped phone calls and sometimes plain
accidents have exposed enough instances
of shenanigans and mischief to shake the
faith of even the most hard-core secularist.
Recep Tayyip Erdogan, the prime minister,
has spoken of historic changes. The days
when civilians took their orders from generals
in Turkey may be gone for good.
The most recent scandal concerns two
ocers from Turkey’s special forces who
were arrested just before Christmas on suspicion
of trying to assassinate Bulent
Keep out, investigators about
Arinc, the (overtly pious) former speaker
of parliament who is now a deputy prime
minister. One of them apparently tried to
eat the piece of paper on which Mr Arinc’s
address was written when they were arrested
near his Ankara home. The army’s
explanation that the ocers were spying
on a colleague after an anonymous tip-o
that he was passing secrets on to Mr Arinc
failed to impress prosecutors: several other
ocers were briey detained in connection
with the alleged murder attempt.
Against sti initial resistance, investigators
combed the special forces’ once-impregnable
Ankara headquarters over several
days for evidence of other plots to
destabilise the country and unseat Mr Erdogan’s
ruling Justice and Development
(AK) government. They may have found
some old dastardly plans. The Tactical Mobilisation
Group of the Special Forces
Command is believed, among other
things, to have orchestrated the provocations
that led to the mass exodus of ethnic
Greeks from Istanbul in 1955.
The latest operation marks perhaps the
rst time that civilian ocials have carried
out such an action against the army. Their
ability to do so was enshrined in a landmark
law, passed by the AK government in
June 2009, that allows men in uniform to
be tried in civilian courts. After some wobbling,
Mr Erdogan now seems ready to take
the army on. Many ocers, including several
retired generals, are languishing in jail
in connection with the so-called Ergenekon
trial of a group of would-be coup plotters.
With each new revelation that taints
the armed forces, ever more Turks fret that
the army may be undermining the state.
This week General Ilker Basbug, the
chief of the general sta, admitted that the
raids on the Special Forces Command
were carried out within the law. Despite
occasional growls about unnamed enemies
blackening the army’s name, General
Basbug seems quietly to be co-operating
with the government in its investigation.
Over the years the army, which has toppled
four governments since 1960, has
been among the biggest obstacles to a stable
democracy in Turkey. But the squabbling
politicians are little better. The main
opposition leader, Deniz Baykal, has at
times seemed even keener on a coup than
are the generals themselves. More than
seven years after AK was rst elected to
government, laws restricting free speech
remain. The most heartening aspect of the
recent scandals may be that so many were
revealed by ocers who exposed rogues
within their own ranks. 7
The Balkans and the European Union
Lightening gloom?
BELGRADE
A somewhat more optimistic start to the
new year in the western Balkans
ONLY a few months ago a deep gloom
hung over the western Balkans. Both
Croatia and Serbia had been stopped in
their separate tracks towards the European
Union. Foreign investment had dried up
during the recession. There was even
doom-laden talk of a renewed conict in
Bosnia. But now the atmosphere has generally
improved; maybe not everywhere,
but particularly so in Serbia.
Serbia had been blocked by the Dutch,
who wanted it to arrest Ratko Mladic, the
fugitive Bosnian Serb general indicted by
The Hague war-crimes tribunal on charges
of genocide. But, satised that the authorities
are genuinely looking for General
Mladic (a Serbian minister has just resigned
for failing to catch him), the Dutch
have for now lifted their veto. Just before
Christmas, Serbia’s government applied 1

The Economist January 2nd 2010 Europe 39
2 for EU membership.
The idea was that Serbia should end the
year with a bang. Three days previously
Serbs, along with Macedonians and Montenegrins,
had regained the right to travel
without visas to most EU countries that
they lost during the wars of the 1990s.
Soon afterwards Fiat, an Italian carmaker,
at last acquired a full 67% stake in Serbia’s
main carmaker, Zastava, which was already
turning out Fiat Puntos. That deal
was planned in 2008 but frozen by the economic
crisis. Mladjan Dinkic, Serbia’s deputy
prime minister, claimed the takeover
signalled the end of Serbia’s recession.
Mr Dinkic may be too optimistic. Serbia’s
economy has been hit hard and GDP
is expected to have contracted by 3.5% in
2009 and to grow by only 1% in 2010. Yet
the Fiat deal matters as a sign of renewed
condence in the country. What is not clear
is whether ordinary Serbs will be much
cheered by it. In February the government
will begin ring 8,500 workers as it tries
desperately to cut public spending. On December
6th in a local election in Vozdovac,
a Belgrade municipality that President Boris
Tadic’s ruling Democratic Party sees as
its natural territory, the opposition parties
were the winners.
The leading opposition party, the Serbian
Progressives, was founded only in October
2008. It emerged from the extreme
nationalist Radicals, now just a rump
party. The Radicals’ irredentism had
turned into irrelevance, so Tomislav Nikolic,
the acting party leader, chose to follow
the example of Croatia’s nationalists
and fashion a modern centre-right party,
shorn of warlike rhetoric and no longer
anti-EU. The latest opinion polls give the
new party a similar share of the vote to Mr
Tadic’s Democrats.
In the meantime, Croatia’s own former
nationalist party, led by Jadranka Kosor,
the prime minister, is crestfallen. For much
of 2009 Croatia’s EU accession talks were
blocked by a trivial border dispute with
Slovenia. Despite recently raising some
fresh concerns, the Slovenes have now lifted
their veto. Croatia could join the EU as
soon as 2012. Yet in the rst round of a presidential
election on December 27th, Mrs
Kosor’s candidate was beaten into third
place. The second round on January 10th
will pitch Ivo Josipovic, a lacklustre Social
Democrat, against Milan Bandic, the controversial
mayor of Zagreb.
Ines Sabalic, a magazine columnist,
notes another big shift. In the past, proving
one’s patriotism was the way to win votes,
but no longer. Today, she says, anti-corruption
is the new nationalism and everyone
outdoes everyone else with promises to
clean up the country. Organised crime, corruption
and a judiciary buried under a
backlog of hundreds of thousands of cases
are only the most urgent tasks.
The campaign was boring, the candi-
An autonomous Vojvodina
Exit strategy
Backa Topola and novi sad
A Serbian province wins greater self-governance
SERBIAN nationalists are outraged over
a new autonomy statute for Vojvodina,
their northern province. Their
country has in eect been shrinking for
two decades, and this may be the thin
end of a wedge leading to Vojvodina’s
independence. After all, Kosovo and
Vojvodina had equally extensive autonomy
until Slobodan Milosevic scrapped it
in 1989. And in February 2008 Kosovo,
whose population is overwhelmingly
Albanian, declared independence.
Such scaremongering is nonsense,
says Bojan Pajtic, Vojvodina’s prime
minister. So are comparisons with Catalonia
and Scotland, where autonomy is
based on language or history. Some 65%
of Vojvodina’s 2m people are Serbs who
have no wish for independence. Moreover,
compared with the autonomy the
province had between 1974 and 1989, the
powers now being devolved look modest.
Indeed, sceptics say what is really at
stake is a battle for party power, inuence
dates dull and people are fed up, says Ivo
Banac, a historian and commentator.
Croats are the richest people in the western
Balkans and the closest to following
Slovenes into the EU, but polling by Gallup
and the European Fund for the Balkans
nds 84% of respondents in Croatia, more
than anywhere else, think their country is
heading in the wrong direction.
Much as others in the western Balkans
may resent it, Serbia and Croatia are the
two countries that matter most in the region.
Many obstacles stand athwart the EU
ambitions of Montenegro and Macedonia,
as well as Bosnia, Kosovo and Albania
(these three have not even won visa-free
travel yet). But if the big two make pro-
and money between Mr Pajtic and Serbia’s
president, Boris Tadic.
Mr Pajtic rejects such claims. What
Vojvodina has gained, he says, is the
ability to develop just like other European
regions. But Relja Drazic, a publisher
based in Novi Sad, the region’s capital,
who otherwise welcomes more autonomy,
sees this as grandstanding.
Most locals seem not to care much,
partly because they do not know what
more autonomy will mean in practice. In
the past Vojvodina has seen devastating
wars and big migrations that have made
it one of the most ethnically mixed places
in the Balkans. After the second world
war, ethnic Germans were driven out
and their empty villages repopulated,
mainly by Bosnian Serbs. The Balkan
wars of the 1990s led to more migration.
Vojvodina has six ocial languages,
including Ruthenian and Slovak.
Hungarians (some 14% of the population)
comprise the biggest minority.
But over the past two decades younger
Hungarians have drifted back to Hungary.
In the small town of Backa Topola,
whose population is mostly Hungarian,
Janos Hadzsy, a journalist, laments that
anyone with enough brains runs away.
Yet though much of Vojvodina remains
poor, some parts have done well. Much
of the province is at and fertile farmland,
and there is some thriving small
industry as well.
Vojvodina is also home to Serbia’s
most successful brand: the Exit music
festival, created in 2000, which has done
more than anything else to improve
Serbia’s post-war image. Its manager,
Bojan Boskovic, talks of turning Novi Sad
into the Edinburgh of the Balkans. He is
speaking of culture, not politics.
gress, the eect will be positive for all. Enlargement
is hardly a priority in Brussels
these days, and Spain, which does not
even recognise Kosovo’s independence,
has just taken over the rotating EU presidency.
With the exception of Croatia, the
others have many years of work before
they can even come close to joining the EU,
so today’s hostile mood may be less worrisome
and discouraging than it appears.
Only a decade ago Slobodan Milosevic,
president rst of a disintegrating Yugoslavia
and then of a belligerent Serbia (and
Montenegro), was still comfortably in
power in Belgrade. In the Balkans progress
tends to be painfully slow. But it is progress,
all the same. 7

Britain
40 The Economist January 2nd 2010
The election campaign
Under starter’s orders
The contest sharpens as it enters its nal few months
BRITAIN was once renowned for its mercifully
brief election campaigns. Americans
subjected to almost ceaseless electioneering
envied the four-week ocial
hustings from the dissolution of Parliament
to polling day itself. But just as prime
ministers have become more presidential,
so general elections have come increasingly
to resemble those across the Atlantic.
The actual vote in 2010 is likely to be in
May and must be held by early June. Yet
politicians have been campaigning since
last autumn’s party conferences. Set-piece
events, such as the pre-budget report on
December 9th, have been more nakedly
political than usual. Labour ministers
grumble that civil servants are hoarding
ideas and energy for the Tories, the new
masters they may soon be serving. Political
discourseeven at a time of war in Afghanistan
and the most serious economic
slump since the second world waris
dominated by the micro-politics of campaign
tactics and opinion polls.
The latter point to the most open election
since 1992 when John Major, the then
prime minister, pulled o a surprise fourth
consecutive victory for the Conservatives.
Now the Tories enjoy a comfortable lead
(see chart), but one that has shrunk in recent
months. That is a worry for them because
uneven constituency sizes and other
vagaries of the electoral system discriminate
against the party. It needs a swing of
seven percentage points in its favourthe
second biggest everto win an overall majority
in Parliament of just one seat. True,
this assumes a uniform swing across all
constituencies, and the Tories are targeting
their superior resources on the most marginal
seats. But there remains a serious
prospect of a hung parliament.
Such an inconclusive election outcome
has not happened since 1974, when Britain
faced not just an economic but also a political
crisis caused by overmighty trade unions.
Today the trouble aicting the country
is economic and scal: news on both
fronts over the next few months may sway
the election’s outcome (see next story). The
Tories want rapid spending cuts to deal
Clear blue water
Voting intention, poll of polls, %
Liberal Democrat
Conservative
Labour
2005 06 07 08 09
Sources: BPIX; ComRes; ICM; Ipsos MORI; Populus; YouGov
50
40
30
20
10
Also in this section
41 The economy and the election
42 Extraditions to Poland
42 English libel law
Bagehot is back next week
with an alarming decit of 12.6% of GDP in
2009-10. Gordon Brown says this betrays
complacency about a prospective economic
recovery that is, to the prime minister’s
mind, too fragile to do without continued
government largesse. He also hopes
that the Conservatives’ zeal to wield the
axe will undo their hard-won trustworthiness
as guardians of the public services.
But the government itself is split on just
how much austerity is needed. The Treasury
wanted a stingier pre-budget report
than the one that emerged after aggressive
lobbying from Mr Brown and other ministers.
Cuts to university funding recently announced
by Lord Mandelson suggest that
the powerful business secretary is among
the scal hawks in the cabinet. Ed Balls, the
schools secretary, is the most prominent
advocate of big spending.
Labour is also divided on the wisdom
of making class-based attacks on the Tories,
a line favoured by both the prime minister
and Mr Balls. By contrast, the likes of
Lord Mandelson and Tessa Jowell, the Cabinet
Oce minister, are wary of alienating
the more prosperous south.
Yet the Conservatives may be vulnerable
to such an oensive. The party says
that raising the threshold of inheritance
tax (a promise they made in fatter times for
the national coers) is now a low priority
but will eventually happen. By contrast, reversing
the government’s planned increase
in national-insurance contributions
is a high priority, but not a guarantee. This
line may not survive the heat of an election
campaign.
Neither of the two main parties commands
much enthusiasm in the country.
They can blame much of this on an antipolitics
atmosphere, which pre-dates the
MPs’ expenses scandal that broke last May
but was intensied by it. Britain is in no 1

The Economist January 2nd 2010 Britain 41
2 mood to replicate the euphoria that greeted
Labour’s sweeping victory in 1997. But
there is still scope for the parties to improve
their own pitch to voters. Labour
may have a clear spend to grow message
on the economy, but it has less to say about
Britain after the recession. The Tories have
plenty of promising futurology to do with
decentralising power and reviving civil
society. But they are shakier on the economic
here-and-now, and run the risk of
sounding too bleak.
Labour, insist many in the party, is a
strong team fronted by a hopeless leader.
In David Cameron, the Tories boast an admired
leader in charge of a largely anonymous
shadow cabinet. The problem for Labour
is that Mr Cameron can shift the
spotlight to some of his promising colleagues
(there are a few). Rebranding Mr
Brown, whose personal ratings remain dismal,
seems a lost cause. A series of American-style
televised debates, the rst of
their kind in Britain, will pit the two men
against each other before the election
(Nick Clegg, the Liberal Democrat leader,
will also take part).
The home stretch
The prime minister does have the advantage
of being able to choose the timing of
the election, but his decision now seems
less in doubt than in recent weeks. There
had been speculation that Mr Brown
would go to the polls in March, to spare
himself the ignominy of another budget
exposing the desperate state of the public
nances. But that argument has been
weakened since the pre-budget report,
which went down less badly with voters
than feared, maybe because of its crowdpleasing
tax raid on bank bonuses. And
the weather argues against an early election;
a dark and cold polling day is thought
to work to Labour’s disadvantage by keeping
more of its voters at home.
Whenever the election is held, the government
can achieve little of substance before
it. Parliament rose even earlier than
usual for the Christmas holiday. A urry of
policy announcements that the Tories are
planning for January will force day-by-day
responses from ministers already distracted
by the call of the campaign trail.
Merely surviving to ght the general
election is an achievement of sorts for Mr
Brown, whose leadership has been under
threat for most of his time in power. Indeed,
the sense that he has seen o defenestration
may explain his untypically
perky mood, which was visible even before
his party’s recent mini-recovery in the
polls. And if the unpopular leader of a 13year-old
government that has presided
over a wretched recession ends up limiting
his opponents to a narrow majority in Parliament,
or even a minority government,
that would warrant some cause for satisfaction
on his part. 7
The economy and the election
The gures that will count
News about recovery and ination may sway the voters
PARTY leaders draw up elaborate
plans to woo voters during election
campaigns; but economic events can
upset them. In June 1970, for example,
unexpectedly bad trade gures tripped
up Harold Wilson, as he seemed set to
win another term for Labour.
These days recovery from the recession,
rather than the balance of payments,
is the crucial economic indicator.
In 2010 Gordon Brown will be hoping
that the voters give him credit for steering
the economy back to growth. That hope
took a knock when GDP continued to
shrink in the third quarter of 2009. Although
gures published on December
22nd showed that the decline in national
output was 0.2%, rather than the initial
estimate of 0.4%, they conrmed that
Britain was the only big economy still
stuck in recession.
Now Labour is looking forward to
January 26th, when ocial statisticians
will present their rst report on what
happened to GDP in the nal quarter of
2009. There are underlying grounds to
expect the long-awaited recovery to
materialise, such as the stimulus to exports
from a weak pound and a turnaround
in the stockbuilding cycle. There is
also a more specic reason. On January
1st the main rate of VAT returns to 17.5%,
after 13 months in which it was reduced
to 15% to help combat the downturn. That
has given consumers a strong incentive
to boost purchases in the closing months
of 2009. They were certainly out in force
after Christmas, when retailers reported
a surge in the number of shoppers.
Yet this rush may have a downside for
Labour too. After bringing forward purchases
to beat the VAT rise, consumers
are likely to cut back in early 2010. The
Labour hopes they will crowd out the recession
initial estimate of GDP in the rst quarter
will be published on April 23rd, close to
the most likely election date, May 6th.
Data suggesting a setback to the recoveryfaltering
growth or even a dip in
GDPwill damage Mr Brown.
Moreover, the rise in VAT will push
up ination. Already, consumer-price
ination has risen from a recent low of
1.1% in September to 1.9% in November,
largely because petrol prices have been
rising whereas they were falling steeply a
year earlier. The increase in VAT could
push ination above 3%, requiring Mervyn
King, the governor of the Bank of
England, to explain why the 2% target has
been overshot to such an extent. The
surge in ination will be temporary
because the recession has opened up so
much spare capacity; but the timing is
awkward for Labour, and could further
dent voters’ faith in its competence.
Alongside economic performance,
the public nances will be a central
campaign theme. Labour is vulnerable to
a loss of condence among the investors
who must nance the government’s huge
borrowing requirement. A failed gilt
auction, in particular, could send sterling
tumbling. So, too, could a spring budget
that, like December’s pre-budget report,
failed to spell out a credible plan to reduce
the decit.
Even if the economic news is promising
and the nancial markets jitter-free,
Labour will have a hard job to convince
voters that it deserves to manage the
economy and public nances for a fourth
term. It has after all presided over the
longest and deepest recession and biggest
budget decit since the second world
war. Whatever happens in early 2010,
that dire record will stain its reputation.

42 Britain The Economist January 2nd 2010
Extraditions to Poland
Wanted, for
chicken rustling
Why one country accounts for half of
Britain’s European extraditions
EVERY fortnight an aeroplane carrying
Polish policemen touches down at an
airport in southern England. Waiting for
them each time is a glum band of 20 or so
handcued men who are to be own back
to face trial in Poland. Extradited prisoners
are normally transferred on ordinary commercial
ights, but a surge in the number
being sent from Britain to Poland means
that now a fortnightly Con Air service is
being laid on by the Polish authorities.
Astonishingly, Poland now accounts for
more than half of all Britain’s extraditions
to Europe (see chart). The number of transfers
grew from four in 2005 to 186 in the rst
nine months of 2008. That is about ten
times the number being sent to Ireland, despite
the fact that Irish migrants easily outnumber
Poles in Britain. What explains
this sudden plague of hardened criminals?
A look at the charge sheet suggests that
they may not be so hard after all. The
crimes for which people have been extradited
include theft of a chicken, theft of
a piglet and theft of a cupboard door.
Whereas most countries are happy to put
minor oences on hold until the suspect
re-enters the country, Poland requests extradition
for almost any crime, however
petty. Some of its eastern neighbours take a
similarly nicky approach.
Britain has to take the requests seriously
because of the European arrest warrant,
which since 2004 has allowed courts to order
the arrest of suspects anywhere in the
European Union. The warrant has accelerated
the process of extradition and made it
harder for border-hopping criminals to
evade justice. But, like other legal innovations
passed in the wake of the attacks on
America in 2001, it has become more widely
used than expected. Britain’s High Court
ruled in October that it could not stop the
extradition to Romania of a man wanted
for stealing ten chickens.
Pressure groups such as Fair Trials International
worry about the standard of justice
in some of the countries to which suspects
are being fast-tracked. The trivial
requests are also wearing thin with the
British police. Fugitives are tracked down
by the Serious Organised Crime Agency,
an outt designed to bust international
crime syndicates, which now nds itself a
partner in the war on poultry pinching.
In 2008 Britain sent a delegation to Poland
to plead for a let-up, but to no avail. In
November a meeting of EU members in
Brussels again tried to forge a compromise,
Poles apart
Extraditions from Britain to:
other EU
countries
Poland
0
2004 05 06 07 08*
350
300
250
200
150
100
Source: Home Office *January to September
fruitlessly. The Poles say they are constitutionally
bound to pursue every oender.
Others say that Poland uses more discretion
at home, where its own resources are
at stake.
The number of extraditions looks set to
grow. In April Britain will join a technologically
whizzy pan-European informationsharing
scheme, which will replace the
current system of faxes and phone calls.
The Home Oce reckons it will mean that
British police have to make about three
times as many extradition arrests as they
do now. Processing the extra trac will
cost £17m a year even before police and
court-stang costs are factored in.
Surprisingly, dissent among British politicians
is muted. The opposition Conservatives
are wary of kicking o an argument
about Europe within their own
ranks, and the Liberal Democrats are supportive
of the scheme, partly because it
was their European Parliament grouping
that pushed the arrest warrant through in
the rst place. For now, Britain will remain
shoulder-to-shoulder with Poland in the
crusade against chicken rustling. 7
English libel law
Taking away the
welcome mat
Overdue reforms may be on the way
MOST tourists come to Britain for the
palaces, the pubs and the history. But
a few come to take advantage of England’s
ferociously claimant-friendly libel laws
(Scotland’s are dierent). A string of cases
in which plaintis with tenuous links to
England have taken advantage of these
rules has fuelled worries about legal forum
shopping.
Belatedly, politicians are taking notice.
On December 27th Jack Straw, the justice
secretary, said that a hurriedly assembled
(but as yet unnamed) panel of lawyers, ac-
50
ademics and newspaper editors will meet
to ponder improvements, with a plan for
reform due by March.
Libel tourism will be top of the list for
change. The most famous example is the
case of Rachel Ehrenfeld, an American
who wrote a book about the funding of Islamic
terrorism. It sold a mere 23 copies in
Britain, over the internet. But a Saudi businessman
sued her in a London court and
was awarded over £100,000 ($160,000). In
other cases brought in England, a Ukrainian
tycoon silenced a Ukraine-based paper
and won a case against a website that
published only in Ukrainian; and Kaupthing,
an Icelandic bank, won damages from
Ekstra Bladet, a Danish newspaper.
Such legal expansiveness worries
countries with more robust traditions of
free speech. Several American states have
passed or are pondering laws protecting
their citizens from English libel judgments.
Some sort of proportionality test seems
likely, whereby English courts can assert
jurisdiction only if a signicant share of
sales (10% is one gure being bandied
about) are in England. That would make
forum shopping harder, although it would
not strengthen the position of defendants
themselves in cases that do make it to trial.
It is not just journalists and writers who
are unhappy. Scientists worry that claimant-friendly
rules are stiing the criticism
on which science depends. Henrik Thomsen,
a Danish academic, is being sued by
GE Healthcare after he suggested at a conference
in Oxford that one of the company’s
drugs might have potentially fatal
side-eects. Peter Wilmshurst, a British cardiologist,
is facing a lawsuit from an American
rm, NMT Medical, over comments
he made on an American website about a
study into using heart implants to treat migraines.
The British Chiropractic Association
is suing Simon Singh, a popular-science
author, after he wrote in a newspaper
that chiropractic remedies are bogus.
A separate government inquiry is looking
into the question of costs, and will also
report in 2010. Defending a libel action can
be so costly that many defendants settle
immediately or simply do not publish at
all. Mr Singh has spent over £100,000 defending
himself so far. Index on Censorship,
a pressure group, has suggested a
£10,000 cap on damages to reduce the advantages
enjoyed by the rich.
Libel reform may seem an obscure subject
for an unpopular government to pursue
with a general election looming. Yet an
internet-led campaign for change has
gained thousands of signatures, plus support
from Richard Dawkins, a prominent
science writer, and Lord Rees, the head of
the Royal Society. And although few voters
are interested in the ins and outs of libel
law, the newspaper and television editors
who provide those voters with their news
most certainly are. 7

International
Climate change after Copenhagen
China’s thing about numbers
Copenhagen
How an emerging superpower dragged its feet, then dictated terms, at a draining
diplomatic marathon
AMID the alphabet soup and baing
procedures of last month’s climatechange
conference in Copenhagen, it was
easy to forget the overall aim: to move from
a world in which carbon dioxide emissions
are rising to one in which they are
falling, fast enough to make a dierence.
How fast is enough? A fair measure is
carbon and other greenhouse emissions in
2050; if by that date they are only half their
1990 level, most people agree, then things
would be on the right track. Another widely
accepted calculation: if developing
countries are to grow a bit between now
and then, rich countries would need to
slash emissions to a level at least 80% below
what they were in 1990.
Many prosperous states have duly accepted
that target; and in recent years the
expression 80% by 2050 has become a familiar,
if optimistic, touchstone for discussions
about climate changeboth in the
rich world and among most other parties
to the UN Framework Convention on Climate
Change (UNFCCC).
When drafts of a last-ditch agreement
began circulating on December 18th,
which should have been the meeting’s nal
day, the 80% by 2050 formula was
still in place. But, hours later, it vanished.
By this stage, eorts to nd consensus
among almost 200 delegations had given
way to bargaining sessions among small-
ish groups of countries behind closed
doors. When the fruits of that back-room
trading were presented to the world by Barack
Obama, the numbers were conspicuous
by their absence.
So too were a number of other conditions
that Europeans and others would
have liked, such as a date for peak emissions.
Why?, a cluster of journalists
asked Lars-Erik Liljelund, the Swedish government’s
point man on climate, in the early
hours of Saturday December 19th. Why
would a pledge that applied only to rich
nations, and to which all those nations
seemed to agree, have vanished from the nal
document? After maybe ten seconds of
what-can-I-say silence came the at reply:
China don’t like numbers.
This is not entirely true. President Wen
Jiabao’s speech to the conference that
morning included a lot of numbers. There
had been 51% growth in China’s renewable-energy
output over the three years to
2008; China had planted 20m hectares of
forests between 2003 and 2008; developed
countries had produced 80% of emissions
over the past 200 years; and so on. The
numbers that China had resisted were
those that could be read in any way as
commitments. It had insisted on stripping
all gures, even ones that did not apply to
China, out of the text that nally became
the Copenhagen accord.
The Economist January 2nd 2010 43
Also in this section
44 Agriculture and climate change
Green.view, our online column on the
environment, appears on Economist.com on
Mondays. The columns can be viewed at
Economist.com/greenview
In their zeal to avoid being pinned
down, the Chinese went further. They secured
the removal of language contained
in early drafts that spoke of a Copenhagen
deal as a step on the road to a legally binding
treaty. As the world’s largest emitter
(without which any agreement is dead),
China was in a strong position, and it took
full advantage.
Such was the messy denouement of
ten days of largely fruitless UN-guided negotiations,
in which China did nothing to
push things along. Indeed, some suspected
China of doing something worse than just
folding its arms. The atmosphere was poisoned,
early in the meeting, by the leaking
of a draft (one of several texts circulated by
the Danish chair) that favoured the rich
world; various parties thought the Chinese
were the leakers.
On the nal day, tension rose when
President Obama was obliged to conduct
negotiations with comparatively junior
Chinese delegates. At one point, Mr
Obama expected to meet his Chinese opposite
number one-on-one but instead
found himself with the leaders of South
Africa, Brazil and India as well.
All that said, China also gave some
ground. It satised the Americans on one
sticking-point: the principle of monitoring,
reporting and verication of actions
promised by developing countries. Unless
China, in particular, can be shown to live
up to its promises, it will be very dicult to
get a climate bill through America’s Senate.
To Mr Obama’s relief, the accord allows for
an international role in such monitoring,
which China and India had been resisting.
This is not just an academic point; China
has pledged a reduction, of between 40%
and 45% by 2020, in the level of its carbon
intensitythe amount of carbon emitted 1

44 International The Economist January 2nd 2010
2 in proportion to output. It is hard to tell
how big a change the Chinese promise represents
from business as usual; but it has
an impressive ring.
Among the accord’s other features were
a new system for recording pledges on
emission reduction and other actions; a review
of those commitments, due in 2015;
and an as yet undened mechanism for
North-South technology transfer. And
there is money on the table: an initial promise
of $10 billion a year, for three years,
from developed countries to help poorer
states mitigate climate change and adapt to
it. Some of this money will go to towards
implementing a REDD-plus deal on deforestation,
an issue on which real progress
was made. Part of the rich-to-poor transfers
will ow through a Copenhagen
Green Climate Fund, which some poor
countries prefer to the World Bank.
The process will, in theory, accelerate.
Rich countries vowed to mobilise $100 billion
a year by 2020 for more ambitious adaptation-and-mitigation
projects in the
poor world. The UN is supposed to set up a
high-level panel to work out the details
of who gets what. Maddeningly vague? Almost
everybody admitted that the deal
was not nearly as ambitious as they would
have liked. According to most climate
models, the commitments made in Copenhagen
fall a long way short of what would
be needed to keep global warming to 2°C.
Still, it was widely held to be better than
nothingthough, in the nal moments,
nothing nearly triumphed. On the evening
of December 18th heads of state claimed
victory as they drove o to the airport; but
their ostage bargains were unlikely to
make much dierence without a nod, at
least, from the whole meeting. So the bigwigs
left it to more junior negotiators to
present the result of their horse-trading to
the world’s grumpy, exhausted delegates.
When it was introduced to a conference
plenary in the small hours of Saturday
morning, a few countriesnotably Cuba,
Venezuela, Bolivia and Nicaraguatried to
thwart any such benediction. They insisted
that, as it had not been drafted by any
ocial procedure, the deal struck by handpicked
leaders was just a miscellaneous
document of no practical consequence.
The accord would throw Africa into the
furnace, added Lumumba Stanislaus Di-
Aping of Sudan, who spoke for the G77
plus China group of developing nations,
and compared the rich countries’ heartlessness
to Hitler’s genocide.
Such rhetoric proved self-defeating;
more passion was expended on countering
it than could be mustered for the accord
itself. I call on my brother from Sudan to
rethink his conclusions and get hold of his
emotions, said Dessima Williams of Grenada,
representative of the Alliance of
Small Island States, as she accepted a deal
that fell far short of the islanders’ hopes.
After more than three hours of back and
forth, the British energy and climatechange
minister, Ed Miliband, called for an
adjournment just as Lars Lokke Rasmussen,
the Danish prime minister, who was
chairing the session, seemed to be accepting
that the accord would founder.
Only after more hours of back-room
wrangling did a restarted plenary, with a
new chair, get the accord adopted after a
fashion. Thanks to rapid gavelling, the
world’s delegates found they had decided
to take note of the leaders’ agreementa
formula that was held both to permit the
deal to come into eect and to allow some
nations to renounce it. A bid to reinsert the
notion of a future binding treaty was rmly
quashed by China, India and Saudi Arabia.
The next step is for the nations signing
up to the accord to do so, and to ax to it
any commitments they are making, which
is due to happen by February 1st.
At that point, it appears, various steps to
implement the accord and distribute the
money that it speaks of can begin. How
that implementation will t into the ongoing
UN talksthe next full conference will
be in Mexico on November 29this, as yet,
unclear. Equally uncertain is the degree to
which it can breathe new life into market
mechanisms for helping poor countries,
and how the promised verication regime
will actually build trust.
At some stage documents with numbers,
and even long-term aspirations, will
become necessary again, and the nation
that invented the abacus will have to overcome
its aversion to arithmetic. 7
Agriculture and climate change
Why farms may be the new forests
In the war against climate change, peasants are in the front line
FOR people who see stopping deforestation
as the quickest climatechange
win, Copenhagen seemed a
success. Although there is still work to be
done on the initiative known as REDD
(Reducing Emissions from Deforestation
and Forest Degradation), the deal struck
in Copenhagen made it into a real thing,
not just an idea. The notion of reducing
net deforestation to zero was not explicitly
mentioned, but it looks much more
credible than it did two years ago.
As well as giving heart to the protectors
of trees, this outcome is encouraging
for people whose focus is not on forests
but on elds. Climate and agriculture
matter to each other in several ways. On
the downside, farming is a cause of deforestation,
and also emits greenhouse
Into battle in the eco-war
gases in its own rightperhaps 14% of the
global total. On the upside, agriculture
can also dispose of heat-trapping gases,
by increasing the carbon content of soils.
And because farmers (unlike say,
coal-producers) feel the eects of the
changes their activities may be causing,
they have a role in adapting to climate
change. Farms, particularly marginal
ones, are the rst to suer when the
climate shifts; increase their resilience
and you help a lot of people. Whether
the aim is adaptation to climate change
or slowing it, there is an obvious need for
more research on the benign contributions
that agriculture can make. For people
who are seized of this need, there was
a welcome boost on December 16th
when 21countries pledged $150 billion to
a Global Research Alliance on Agricultural
Greenhouse Gases.
One of the attractions of a focus on
agriculture is that even poor countries
have farms; in some cases credits for
carbon newly locked away in their soil
may be a more plausible way of attracting
money than rewards for low-carbon
industrialisation. A more remote possibility
is that such countries will earn
credits by hosting eorts to pump carbon
dioxide out of the air and store it away.
Such geoengineering is still seen as
far-fetched and in some circles misguided,
but a reference to it was made in the
Copenhagen documents. It was cited as a
possible future direction for the Clean
Development Mechanism, which provides
credits for carbon-saving projects
in poorer countries. In the aftermath of
negotiations with a hint of slash-andburn,
new seeds may be taking root.

Business
Government and business in France
Dirigisme de rigueur
Paris
Nicolas Sarkozy is reversing the French state’s gradual withdrawal from the world
of business
WHEN Vivendi, a French telecoms and
media group, announced a deal to
buy GVT, a Brazilian telecoms rm, for 2
billion ($2.9 billion) in September, the last
thing it expected was a scolding from the
Elysée Palace, the ocial residence of
France’s president, Nicolas Sarkozy. His
sta complained that they should have
been briefed as the deal was being negotiated,
which might then have allowed Mr
Sarkozy to bask in the glory during his recent
visit to Brazil.
Phone calls from the Elysée are becoming
a frequent feature of French business.
In February Eutelsat, a satellite rm in
which the state is a minority shareholder,
decided to use a Chinese Long March
rocket to launch a satellite. It wanted to diversify
its suppliers and keep costs down.
Soon afterwards the company’s board
members were summoned to the Elysée.
Eutelsat should have used a rocket built by
Arianespace, a French rm, they were told
by one of Mr Sarkozy’s advisers.
Until the nancial crisis struck successive
French governments had been reducing
their involvement in business. The
state sold majority stakes in big rms such
as France Telecom in the 1990s and early
2000s, and let those rms still largely in
government hands, such as Electricité de
France (EDF), take a more market-oriented
approach. But the crisis has prompted a
creeping return to an earlier tradition. The
tide was going in one direction for years
even the socialists privatised, we had less
political interference and more nancial
savvy, says an investment banker in Paris,
but now we’re stepping backwards.
To be sure, intervention is newly in
style in several countries, with governments
around the world taking stakes in
banks and America’s taking charge of two
carmakers. But as might be expected,
France is going further. Not content with
the state’s existing stakes in many big
French rms, Mr Sarkozy has set up a new
fund, the Fonds Stratégique d’Investissement
(FSI), to make further investments.
Half owned by the Caisse des Dépôts, a
public nancial institution, and half directly
by the government, the FSI aims to
invest 2 billion a year in French companies.
Its boss, Gilles Michel, says it will act
as a long-term minority shareholder for
promising French rms, encouraging private
investors to invest alongside it. But
business people see a return to the noyau
dur system of the late 1980s, when the
state created a web of cross-shareholdings
to protect rms against foreign takeovers.
Mr Sarkozy encouraged one of the FSI’s
rst investments, in Valeo, a troubled carparts
rm, as a defence against an American
activist fund, Pardus Capital. If there’s
a hostile oer for, say, Danone, the FSI will
be ready, says an adviser. Mr Michel, however,
argues that cases where the FSI has resisted
pressure to invest demonstrate our
independence and mandate to invest only
in rms with potential.
The crisis has deepened Mr Sarkozy’s
The Economist January 2nd 2010 45
Also in this section
46 Pay-TV in emerging markets
46 Taser diversies its arsenal
47 Clean technology after Copenhagen
47 South Korea’s nuclear triumph
48 Schumpeter: Why feminists do not
make good recruiters
Business.view, our online column on business,
appears on Economist.com on Tuesdays.
Past and present columns can be viewed at
Economist.com/businessview
determination to promote French national
champions, whether state-owned or private,
says Alain Minc, an inuential consultant
in Paris, and he intends to use all
the tools at his disposal to achieve his
aim. The government recently decided to
sell the transmission and distribution arm
of Areva, a state-owned nuclear rm, to Alstom
and Schneider Electric, two French
companies, despite a higher bid from Japan’s
Toshiba Corporation. Mr Sarkozy
would even like to resurrect Péchiney, a
French aluminium rm taken over by a
succession of foreign rivals, which cut
managerial jobs in France and changed its
name. The FSI is now looking into investing
in its remains and reviving the brand.
In October the FSI invested 7.5m in
DailyMotion, a successful video-sharing
website which competes with YouTube
outside America, and took a seat on its
board. It’s the only decently successful
French start-up in the internet industry,
explains an adviser to Mr Sarkozy. The
FSI’s involvement has angered privateequity
funds, which wanted to participate
in DailyMotion’s capital raising, but found
themselves outbid by the more generous
terms oered by the government, according
to one of them.
Mr Sarkozy has also made his presence
felt by appointing associates to prominent
business jobs. Critics bayed last year when
he chose an economic adviser, François Pérol,
as head of BPCE, a mutual bank whose
formation through a merger he had just
overseen. Most recently, the rise of Stéphane
Richard, another friend, at France
Telecom, in which the government retains
a 27% stake, has raised eyebrows. He joined
the rm in May with no experience in telecoms
save a prior stint on the board, but is
due to become boss within two years.
Mr Sarkozy’s most controversial appointment
has been that of Henri Proglio
as the head of EDF, a state-owned utility. 1

46 Business The Economist January 2nd 2010
2 Mr Proglio has insisted on keeping a role at
Veolia Environnement, an environmentalservices
company where he had spent
most of his career. Mr Proglio’s position at
the top of two rms in related businesses is
regarded in French boardrooms as a shocking
breach of good corporate governance.
The head of the stockmarket regulator recently
called the set-up baroque. Mr Proglio
is also thought to favour a share swap
involving EDF which would raise the
state’s interest in Veolia from 13% to 23%.
There are limits to Mr Sarkozy’s inuence.
An outcry forced his 23-year-old son
to abandon a bid for the top job overseeing
the agency that runs La Défense, Paris’s
business district. On December 18th
France’s telecoms regulator awarded a
new mobile licence to Iliad, an upstart telecoms
rm, even though Mr Sarkozy had
publicly voiced misgivings. Nor has the
government prevailed in the case of Accor,
a hotels and services group where two big
active shareholders are pressing for a
break-up. The FSI opposes the split, but
with just 7.5% of the rm’s shares it has not
been able to prevent a decision by the
board in December to press ahead.
Some business people reckon Mr Sarkozy’s
interventions may yield results.
When, as nance minister, he intervened
in the case of Alstom, injecting public
money in 2004, he saved the company and
eventually made a big prot for the state.
But executives also worry that French industry
may face a backlash abroad because
of his desire to promote national
champions. Above all, French bosses
dread a call from the Elysée. 7
Pay-TV in emerging markets
Finding El Dorado
Big media rms are quietly building
empires overseas
FOR a long time pay-television has essentially
been an American business,
much more popular (and lucrative) there
than anywhere else in the world. But the
balance is about to tip. In 2010 more will be
spent on subscriptions to multichannel
television outside the United Statesabout
$96 billionthan in it, according to SNL Kagan,
a research outt. The eect on big
American media rms is profound.
The rest of the world has lagged America
in pay-TV both because relatively few
people subscribe to it and because, in
some countries, it has been dicult to sell
advertising. In Japan, for example, just 24%
of television-owning households pay for
more channels, and ad revenue is puny. Yet
other countries are catching up, with
The lure of the unknown
Penetration of pay-TV among households
with televisions, %, 2009
United
States
Poland
India
China
Mexico
Turkey
0 25 50 75 100
Source: SNL Kagan
% increase 2007-09,
annual average
poorer countries often speeding past richer
ones (see chart). Brazil’s Net Serviços
grew from 1.8m subscribers in 2006 to 3.6m
in 2009. American media companies hope
that they will be lifted by a rising tide of
pay-TV subscribers in emerging markets.
It has worked for Discovery Networks,
which puts out programmes about wild
animals and grizzled men. The rm’s channels
(ve of them, on average) are available
in 174 countries. In the third quarter of
2009 34% of Discovery’s revenues came
from pay-TV outside America. Because it
ventured abroad early Discovery was able
to grab the best channel positions, says David
Zaslav, the rm’s boss. A network that
is number 11 on a multichannel menu
tends to get a lot more viewers than one
that is number 211. Discovery is trying to
seize a similar rst-mover advantage in
high-denition television.
The path blazed by Discovery is now
well-trodden. In the nancial year
2008-09 Fox International Channels, part
of News Corporation, had turnover of
more than $1 billionup from less than
$200m seven years earlier. That does not
include wholly owned enterprises like
Star, an Asian network, or part-owned
ones like Fox Sports Australia. Even public
broadcasters are getting in on the act. BBC
Worldwide, the public corporation’s commercial
arm, has launched 17 channels
since March 2008 and now has 46 around
the world.
Media companies approach foreign
markets in dierent ways. News Corporation
looks to combine content and distribution
by investing in satellite companies.
That allows it to glean information about
consumers’ tastes and eventually to sell
them higher-margin broadband and
phone servicesa model that has worked
well in Britain. Sony nurtures brands like
Animax, originally a Japanese animé
channel, in Asia before exporting them to
the rest of the world. Viacom and Disney
aim to use their television shows to promote
products such as CDs and clothing.
There is less variation in the countries
that media conglomerates are targeting.
The hottest market is India, where the combination
of a staid state broadcaster with a
0.6
12.4
6.2
6.3
7.8
12.6
free-to-air monopoly and erce competition
among cable and satellite companies
has boosted pay-TV. Most rms are keen
on Latin America and eastern Europe, particularly
Poland. China is almost universally
viewed with despair. It has a large,
fast-growing number of pay-TV households,
but it is a regulatory nightmare.
This global expansion has generated
oddly few charges of cultural imperialism.
One reason is that content is often altered
to t local tastes. Reality television, which
is popular almost everywhere, is an inherently
local genre. So there is a Latin American
Idol and an India’s Got Talent.
MTV can deliver local content when the
market demands it (as in India) or international
content (as in the Czech Republic).
Discovery and National Geographic, a
joint venture with News Corporation,
have perhaps the best model. They create
programmes about exotic wildlife and locations
that can be shown anywhere, foreignness
being part of their appeal.
In any case, the trac is not one-way. As
the Indian population of places like California’s
Bay Area has grown, American
media rms have reimported channels developed
for foreigners. MTV India came to
America in 2007. The Hindi version of
Sony Entertainment Television is now
available in more than 200,000 American
homes. So it is not just money that is coming
back to America from abroad. 7
Taser diversies its arsenal
Proto-RoboCop
New York
The iconic maker of stun-guns aims to
take policing into cyberspace
YOU know you have made it when the
name of your rm mutates into a verb,
as with Google and Hoover. A recent addition
to this select group is Taser International.
To be tasered is to be briey paralysed
by an electrically charged dart red
from one of the rm’s stun guns, usually
by police seeking to pacify someone without
resort to rearms. But the rm hopes it
will soon come to mean much more.
The device’s success has been electrifying.
In the 15 years since it rst came on the
market, it has become an essential bit of
kit. It is used by 14,000 of the 18,000 lawenforcement
agencies in America, along
with many foreign ones. Half the cops in
America carry a Taser as well as a gun,
says Rick Smith, Taser’s boss.
Having come to dominate what Mr
Smith calls the less-lethal weapon space,
Taser has begun a burst of rapid-re innovation
that could, he believes, turn it into a
business with sales of $1billion a yearten 1

The Economist January 2nd 2010 Business 47
2 times its current size. Last June it launched
the XREP (extended range electronic projectile),
a wireless device that can be red
from a shotgun to zap someone up to 100
feet (30 metres) away. Unlike the pinprick
caused by the original wired dart, which
has a range of up to 35 feet, this will leave
an ugly mark, but it won’t kill you, says Mr
Smith. In November it launched the X3, a
semi-automatic stun-gun that allows three
shots, in case the rst one misses.
The biggest innovation, however, has
been sparked by the controversy Tasers
cause. In November there was outcry after
a 10-year-old American girl was tasered by
police called in by her mother when she refused
to take a shower. Police have so often
been accused of using Tasers gratuitously
that the rm started tting them with digital
cameras that recorded every ring. This
Taser-cam got the rm’s bons thinking:
why not equip police with cameras that
can record entire incidents (not just the
brief moment when a Taser is used) and
even beam the recordings instantly back to
the higher-ups at headquarters?
The result is a tactical on-ocer network
computer called AXON, which is
being tested by several police forces in
America. Recordings are uploaded to a restricted
website, evidence.com, to be
viewed by approved personnel. Mr Smith
says that the creation of a sort of secure
YouTube of global law enforcement could
be benecial both for the public, who
would get more accountable police, and
for ocers on the beat, who could be vindicated
more quickly if falsely accused of
brutality. But the biggest winner would be
Taser, which expects to charge $1,700 for
the hardware, plus $99 per device per
month to manage all the data. 7
Clean technology after Copenhagen
Waiting for a
green light
BERLIN and SAN FRANCISCO
Business comes to terms with a
disappointing outcome
SO KEEN were many energy and cleantechnology
executives to see a robust
agreement to cut emissions of greenhouse
gases emerge from December’s climate
summit that thousands of them trekked to
Copenhagen to cheer policymakers on. It
was to no avail: the participants failed to
agree on a global mechanism to put a price
on emissions, making it harder for energy
rms to justify big investments in unproven
green technologies, such as advanced
biofuels or carbon capture and storage.
Almost all areas of clean technology will
get a little less investor interest because
there is no mandate, predicts Vinod
It’s still on the loose
Khosla, a prominent venture capitalist.
Clean-tech executives were encouraged
by commitments to improve energy eciency
made by India and China, as well as
a promise by rich countries to funnel billions
to poor ones to pay for green investments.
Many shrug o events in Copenhagen
on the grounds that national, regional
and local regulations are the main drivers
of clean-tech investment, not international
deals. Paul Holland of Foundation Capital,
a venture rm, points out that many municipalities
in America have promised to
reduce carbon emissions to 1990 levels.
This is driving strong demand for smart
grids, green building materials and the like.
Many states have green initiatives too.
A recent survey of big investors in Europe
by Jeeries, an investment bank, has
found that they, too, believe sustained national
support for clean-tech industries
matters more than an international deal
on climate. Clean-tech investment is also
driven by concerns about the security of
energy supplies, says Bruce Huber of Jefferies.
In Germany, which has generously
subsidised renewable energy, big rms
such as Siemens have stressed they will
press ahead with their ambitious plans to
invest in greenery in spite of the disappointing
outcome at Copenhagen.
Yet there are some signs of green fatigue
even in as environmentally minded a
place as Germany. Before the Copenhagen
meeting Wulf Bernotat, the boss of E.ON, a
giant German power company, said that if
the summit delivered a rm commitment
to cut emissions, his rm would be willing
to accelerate a plan to cut its carbon emissions
to half of their 1990 level by 2030, by
bringing the deadline forward to 2020.
Since the Copenhagen meeting ended, Mr
Bernotat has backed away from the idea,
citing the need for greater co-ordination
among governments. This will depend
KEPCO wins a nuclear contract
Atomic dawn
Seoul
Korean reactors trump Western ones
IT IS usually the northerly of the two
Koreas that attracts attention for its
nuclear prowess. But on December 27th
a South Korean consortium seized the
limelight by winning a $20 billion contract
to build four nuclear reactors in the
United Arab Emirates. The consortium,
led by Korea Electric Power (KEPCO), a
state-controlled utility, could earn another
$20 billion running the plants over
their projected lifespan of 60 years.
Competition for the contract had
been sti. GE and Hitachi, two engineering
giants, had launched a joint bid, as
had a consortium led by France’s nuclear
champion, Areva. France’s president,
Nicolas Sarkozy, had lobbied energetically
on behalf of the latter group. But
South Korea’s president, Lee Myung-bak,
was equally keen. As a former boss of
Hyundai Construction, he has rst-hand
experience both of vying for contracts in
the Gulf and of building nuclear plants.
Mr Lee is said to have promised to share
some tips on boosting manufacturing, a
fond ambition of the Emirates.
But the chief allure of the Korean bid
was price. It was reportedly billions of
dollars cheaper than the others, albeit
for smaller and less hardened plants.
KEPCO’s nuclear subsidiary, which runs
20 nuclear plants in South Korea and
plans to build 20 more, has a record of
building reactors quickly and running
them ecientlyunlike many of its
Western counterparts. We’re cheap,
durable and dependable, says Kevin
Kang of KEPCO, which is also hoping to
build reactors in India, Jordan and Turkey
among other places. Although the
consortium includes Westinghouse, a
subsidiary of Toshiba of Japan, most of
the technology is Korean. In developing
countries, at least, the West’s nuclear
giants face a formidable new rival.
on further progress not only at the UN level,
but also on the reaction of the European
Union and the dierent national governments,
not only in Europe, he said.
Some clean-tech executives give warning
that companies need to lobby harder
for a global emissions deal rather than pretending
that getting an agreement doesn’t
really matter. Policymakers hear a lot
from the NGO community and from environmental
activists, but not from companies,
says Amit Chatterjee, the boss of
Hara, an American rm that produces software
that helps clients reduce their energy
use. It is time that changed. 7

48 Business The Economist January 2nd 2010
Schumpeter
Womenomics
Feminist management theorists are irting with some dangerous arguments
THE late Paul Samuelson once quipped that women are just
men with less money. As a father of six, he might have added
something about women’s role in the reproduction of the species.
But his aphorism is about as good a one-sentence summary
of classical feminism as you can get.
The rst generations of successful women insisted on being
judged by the same standards as men. They had nothing but contempt
for the notion of special treatment for the sisters, and instead
insisted on getting ahead by dint of working harder and
thinking smarter. Margaret Thatcher made no secret of her contempt
for the wimpish men around her. (There is a joke about her
going out to dinner with her cabinet. Steak or sh? asks the
waiter. Steak, of course, she replies. And for the vegetables?
They’ll have steak as well.) During America’s most recent presidential
election Hillary Clinton taunted Barack Obama with an
advertisement that implied that he, unlike she, was not up to the
challenge of answering the red phone at 3am.
Many pioneering businesswomen pride themselves on their
toughness. Dong Mingzhu, the boss of Gree Electric Appliances,
an air-conditioning giant, says atly, I never miss. I never admit
mistakes and I am always correct. In the past three years her
company has boosted shareholder returns by nearly 500%.
But some of today’s most inuential feminists contend that
women will never full their potential if they play by men’s
rules. According to Avivah Wittenberg-Cox and Alison Maitland,
two of the most prominent exponents of this position, it is not
enough to smash the glass ceiling. You need to audit the entire
building for gender asbestosin other words, root out the inherent
sexism built into corporate structures and processes.
The new feminism contends that women are wired dierently
from men, and not just in trivial ways. They are less aggressive
and more consensus-seeking, less competitive and more collaborative,
less power-obsessed and more group-oriented. Judy
Rosener, of the University of California, Irvine, argues that women
excel at transformational and interactive management.
Peninah Thomson and Jacey Graham, the authors of A Woman’s
Place is in the Boardroom, assert that women are better lateral
thinkers than men and more idealistic into the bargain.
Feminist texts are suddenly full of references to tribes of mon-
keys, with their aggressive males and nurturing females.
What is more, the argument runs, these supposedly womanly
qualities are becoming ever more valuable in business. The recent
nancial crisis proved that the sort of qualities that men
pride themselves on, such as risk-taking and bare-knuckle competition,
can lead to disaster. Lehman Brothers would never have
happened if it had been Lehman Sisters, according to this theory.
Even before the nancial disaster struck, the new feminists also
claim, the best companies had been abandoning patriarchal hierarchies
in favour of collaboration and networking, skills in
which women have an inherent advantage.
This argument may sound a little like the stu of gender workshops
in righteous universities. But it is gaining followers in powerful
places. McKinsey, the most venerable of management consultancies,
has published research arguing that women apply
ve of the nine leadership behaviours that lead to corporate
success more frequently than men. Niall FitzGerald, the chairman
of Reuters and a former boss of Unilever, is as close as you
can get to the heart of the corporate establishment. He proclaims,
Women have dierent ways of achieving results, and leadership
qualities that are becoming more important as our organisations
become less hierarchical and more loosely organised around matrix
structures. Many companies are abandoning the old-fashioned
commitment to treating everybody equally and instead
becoming gender adapted and gender bilingualin touch
with the unique management wisdom of their female employees.
A host of consultancies has sprung up to teach rms how to
listen to women and exploit their special abilities.
The new feminists are right to be frustrated about the pace of
women’s progress in business. Britain’s Equality and Human
Rights Commission calculated that, at the current rate of progress,
it will take 60 years for women to gain equal representation
on the boards of the FTSE 100. They are also right that old-fashioned
feminism took too little account of women’s role in raising
children. But their arguments about the innate dierences between
men and women are sloppy and counterproductive.
People who bang on about innate dierences should remember
that variation within subgroups in the population is usually
bigger than the variation between subgroups. Even if it can be established
that, on average, women have a higher emotional-intelligence
quotient than men, that says little about any specic
woman. Judging people as individuals rather than as representatives
of groups is both morally right and good for business.
Caring, sharing and engineering
Besides, many of the most successful women are to be found in
hard-edged companies, rather than the touchy-feely organisations
of the new feminist imagination: Areva (nuclear energy),
AngloAmerican (mining), Archer Daniels Midland (agribusiness),
DuPont (chemicals), Sunoco (oil) and Xerox (technology)
all have female bosses. The Craneld School of Management’s
Female FTSE100 Index reveals that two of the industries with the
best record for promoting women to their boards are banking
and transport.
Women would be well advised to ignore the siren voices of
the new feminism and listen to Ms Dong instead. Despite their
frustration, the future looks bright. Women are now outperforming
men markedly in school and university. It would be a grave
mistake to abandon old-fashioned meritocracy just at the time
when it is turning to women’s advantage. 7

Brieng Women in the workforce
Female power
Across the rich world more women are working than ever before. Coping with this
change will be one of the great challenges of the coming decades
THE economic empowerment of women
across the rich world is one of the
most remarkable revolutions of the past 50
years. It is remarkable because of the extent
of the change: millions of people who
were once dependent on men have taken
control of their own economic fates. It is remarkable
also because it has produced so
little friction: a change that aects the most
intimate aspects of people’s identities has
been widely welcomed by men as well as
women. Dramatic social change seldom
takes such a benign form.
Yet even benign change can come with
a sting in its tail. Social arrangements have
not caught up with economic changes.
Many children have paid a price for the rise
of the two-income household. Many
womenand indeed many menfeel that
they are caught in an ever-tightening tangle
of commitments. If the empowerment
of women was one of the great changes of
the past 50 years, dealing with its social
consequences will be one of the great challenges
of the next 50.
At the end of her campaign to become
America’s rst female president in 2008,
Hillary Clinton remarked that her 18m
votes in the Democratic Party’s primaries
represented 18m cracks in the glass ceiling.
In the market for jobs rather than votes the
ceiling is being cracked every day. Women
now make up almost half of American
workers (49.9% in October). They run some
of the world’s best companies, such as
PepsiCo, Archer Daniels Midland and W.L.
Gore. They earn almost 60% of university
degrees in America and Europe.
Progress has not been uniform, of
course. In Italy and Japan employment
rates for men are more than 20 percentage
points higher than those for women (see
chart 1). Although Italy’s female employment
rate has risen markedly in the past
decade, it is still below 50%, and more than
The Swedish work ethic
Difference between male and female
employment rates, 2008, percentage points
Sweden
Denmark
France
Germany
United States
Britain
Japan
Italy
Source: Eurostat
0 5 10 15 20 25
1
The Economist January 2nd 2010 49
20 percentage points below those of Denmark
and Sweden (chart 2, next page).
Women earn substantially less than men
on average and are severely under-represented
at the top of organisations.
The change is dramatic nevertheless. A
generation ago working women performed
menial jobs and were routinely
subjected to casual sexismas Mad Men,
a television drama about advertising executives
in the early 1960s, demonstrates brilliantly.
Today women make up the majority
of professional workers in many
countries (51% in the United States, for example)
and casual sexism is for losers.
Even holdouts such as the Mediterranean
countries are changing rapidly. In Spain
the proportion of young women in the labour
force has now reached American levels.
The glass is much nearer to being half
full than half empty.
What explains this revolution? Politics
have clearly played a part. Feminists such
as Betty Friedan have demonised domestic
slavery and lambasted discrimination.
Governments have passed equal-rights
acts. Female politicians such as Margaret
Thatcher and Mrs Clinton have taught
younger women that anything is possible.
But politics is only part of the answer: such
discordant gures as Ms Friedan and Lady
Thatcher have been borne aloft by subterranean
economic and technological forces.
The rich world has seen a growing demand
for women’s labour. When brute
strength mattered more than brains, men
had an inherent advantage. Now that
brainpower has triumphed the two sexes
are more evenly matched. The feminisation
of the workforce has been driven by 1

50 Brieng Women in the workforce The Economist January 2nd 2010
2 the relentless rise of the service sector
(where women can compete as well as
men) and the equally relentless decline of
manufacturing (where they could not).
The landmark book in the rise of feminism
was arguably not Ms Friedan’s The Feminine
Mystique but Daniel Bell’s The
Coming of Post-Industrial Society.
Demand has been matched by supply:
women are increasingly willing and able
to work outside the home. The vacuum
cleaner has played its part. Improved technology
reduced the amount of time needed
for the traditional female work of cleaning
and cooking. But the most important
innovation has been the contraceptive pill.
The spread of the pill has not only allowed
women to get married later. It has also increased
their incentives to invest time and
eort in acquiring skills, particularly slowburning
skills that are hard to learn and
take many years to pay o. The knowledge
that they would not have to drop out of,
say, law school to have a baby made law
school more attractive.
The expansion of higher education has
also boosted job prospects for women, improving
their value on the job market and
shifting their role models from stay-athome
mothers to successful professional
women. The best-educated women have
always been more likely than other women
to work, even after having children. In
1963, 62% of college-educated women in
the United States were in the labour force,
compared with 46% of those with a high
school diploma. Today 80% of American
women with a college education are in the
labour force compared with 67% of those
with a high school diploma and 47% of
those without one.
This growing cohort of university-educated
women is also educated in more
marketable subjects. In 1966, 40% of American
women who received a BA specialised
in education in college; 2% specialised
in business and management. The gures
are now 12% and 50%. Women only continue
to lag seriously behind men in a handful
of subjects, such as engineering and
computer sciences, where they earned
about one-fth of degrees in 2006.
One of the most surprising things
about this revolution is how little overt celebration
it has engendered. Most people
welcome the change. A recent Rockefeller
Foundation/Time survey found that threequarters
of Americans regarded it as a positive
development. Nine men out of ten
said they were comfortable with women
earning more than them. But few are
cheering. This is partly because young
women take their opportunities for granted.
It is partly because for many women
work represents economic necessity rather
than liberation. The rich world’s growing
army of single mothers have little
choice but to work. A growing proportion
of married women have also discovered
Rising force
Female employment rate*, %
Denmark United States Japan
Sweden Germany
Italy
Britain France
1997 99 2001 03 05 07 08
Source: Eurostat *15-64 age group
that the only way they can preserve their
households’ living standards is to join their
husbands in the labour market. In America
families with stay-at-home wives have the
same ination-adjusted income as similar
families did in the early 1970s. But the biggest
reason is that the revolution has
brought plenty of problems in its wake.
Production versus reproduction
One obvious problem is that women’s rising
aspirations have not been fullled.
They have been encouraged to climb onto
the occupational ladder only to discover
that the middle rungs are dominated by
men and the upper rungs are out of reach.
Only 2% of the bosses of Fortune 500 companies
and ve of those in the FTSE 100
stockmarket index are women. Women
make up less than 13% of board members
in America. The upper ranks of management
consultancies and banks are dominated
by men. In America and Britain the
typical full-time female worker earns only
about 80% as much as the typical male.
This no doubt owes something to prejudice.
But the biggest reason why women
remain frustrated is more profound: many
women are forced to choose between
motherhood and careers. Childless women
in corporate America earn almost as
much as men. Mothers with partners earn
less and single mothers much less. The cost
of motherhood is particularly steep for
fast-track women. Traditionally female
jobs such as teaching mix well with motherhood
because wages do not rise much
with experience and hours are relatively
light. But at successful rms wages rise
steeply and schedules are demanding. Future
bosses are expected to have worked in
several departments and countries. Professional-services
rms have an up-or-out
system which rewards the most dedicated
with lucrative partnerships. The reason for
the income gap may thus be the opposite
of prejudice. It is that women are judged by
exactly the same standards as men.
This Hobson’s choice is imposing a
high cost on both individuals and society.
75
65
55
45
35
2
Many professional women reject motherhood
entirely: in Switzerland 40% of them
are childless. Others delay child-bearing
for so long that they are forced into the
arms of the booming fertility industry. The
female drop-out rate from the most competitive
professions represents a loss to collective
investment in talent. A study of
graduates of the University of Chicago’s
Booth School of Business by Marianne
Bertrand and her colleagues found that,
ten years after graduating, about half of
the female MBAs who had chosen to have
children remained in the labour force. It
also leaves many former high-yers frustrated.
Another American study, this time
of women who left work to have children,
found that all but 7% of them wanted to return
to work. Only 74% managed to return,
and just 40% returned to full-time jobs.
Even well-o parents worry that they
spend too little time with their children,
thanks to crowded schedules and the everbuzzing
BlackBerry. For poorer parents,
juggling the twin demands of work and
child-rearing can be a nightmare. Child
care eats a terrifying proportion of the family
budget, and many childminders are untrained.
But quitting work to look after the
children can mean nancial disaster. British
children brought up in two-parent families
where only one parent works are almost
three times more likely to be poor
than children with two parents at work.
A survey for the Children’s Society, a
British charity, found that 60% of parents
agreed that nowadays parents aren’t able
to spend enough time with their children.
In a similar survey in America 74% of parents
said that they did not have enough
time for their children. Nor does the problem
disappear as children get older. In
most countries schools nish early in the
afternoon. In America they close down for
two months in the summer. Only a few
placesDenmark, Sweden and, to a lesser
extent, France and Quebecprovide comprehensive
systems of after-school care.
Dierent countries have adopted dierent
solutions to the problem of combining 1
Household expenditure
Public spending on family benefits*
% of GDP, 2005
France
Britain
Denmark
Sweden
Germany
Italy
Japan
United States
Spain
0 1 2 3 4
Source: OECD *Cash, services and tax benefits
3

The Economist January 2nd 2010 Brieng Women in the workforce 51
2 work and parenthood. Some stress the importance
of very young children spending
time with their mothers. Austria, the Czech
Republic, Finland and Hungary provide up
to three years of paid leave for mothers.
Germany has introduced a parent’s salary,
or Elterngeld, to encourage mothers to
stay at home. (The legislation was championed
by a minister for women who has
seven children.) Other countries put more
emphasis on preschool education. New
Zealand and the Nordic countries are particularly
keen on getting women back to
work and children into kindergartens. Britain,
Germany, Japan, Switzerland and,
above all, the Netherlands are keen on
mothers working part-time. Others, such
as the Czech Republic, Greece, Finland,
Hungary, Portugal and South Korea, make
little room for part-time work for women.
The Scandinavian countries, particularly
Iceland, have added a further wrinkle by
increasing incentives for fathers to spend
more time caring for their children.
The world’s biggest economy has
adopted an idiosyncratic approach. America
provides no statutory paid leave for
mothers and only 12 weeks unpaid. At least
145 countries provide paid sick leave.
America allows only unpaid absence for
serious family illness. America’s public
spending on family support is low by
OECD standards (see chart 3 on the previous
page). It spends only 0.5% of its GDP on
public support for child care compared
with 1.3% in France and 2.7% in Denmark.
It is dicult to evaluate the relative merits
of these various arrangements. Dierent
systems can produce similar results:
anti-statist America has roughly the same
proportion of children in kindergartens as
statist Finland. Dierent systems have different
faults. Sweden is not quite the paragon
that its fans imagine, despite its familyfriendly
employment policies. Only 1.5%
of senior managers are women, compared
with 11% in America. Three-quarters of
Swedish women work in the public sector;
three-quarters of men work in the private
sector. But there is evidence that America
and Britain, the countries that combine
high female employment with reluctance
to involve the state in child care, serve their
children especially poorly. A report by Unicef
in 2007 on children in rich countries
found that America and Britain had some
of the lowest scores for well-being.
A woman’s world
The trend towards more women working
is almost certain to continue. In the European
Union women have lled 6m of the
8m new jobs created since 2000. In America
three out of four people thrown out of
work since the recession began are men;
the female unemployment rate is 8.6%,
against 11.2% for men. The Bureau of Labour
Statistics calculates that women
make up more than two-thirds of employ-
ees in ten of the 15 job categories likely to
grow fastest in the next few years. By 2011
there will be 2.6m more women than men
studying in American universities.
Women will also be the beneciaries of
the growing war for talent. The combination
of an ageing workforce and a more
skill-dependent economy means that
countries will have to make better use of
their female populations. Goldman Sachs
calculates that, leaving all other things
equal, increasing women’s participation
in the labour market to male levels will
boost GDP by 21% in Italy, 19% in Spain, 16%
in Japan, 9% in America, France and Germany,
and 8% in Britain.
The corporate world is doing ever more
to address the loss of female talent and the
diculty of combining work with child
care. Many elite companies are rethinking
their promotion practices. Addleshaw
Goddard, a law rm, has created the role of
legal director as an alternative to partnerships
for women who want to combine
work and motherhood. Ernst & Young and
other accounting rms have increased
their eorts to maintain connections with
women who take time o to have children
and then ease them back into work.
Home-working is increasingly fashionable.
More than 90% of companies in Germany
and Sweden allow exible working.
A growing number of rms are learning to
divide the working week in new ways
judging sta on annual rather than weekly
hours, allowing them to work nine days a
fortnight, letting them come in early or late
and allowing husbands and wives to share
jobs. Almost half of Sun Microsystems’s
employees work at home or from nearby
satellite oces. Raytheon, a maker of missile
systems, allows workers every other
Friday o to take care of family business, if
they make up the hours on other days.
Companies are even rethinking the
structure of careers, as people live and
The next generation
work longer. Barclays is one of many rms
that allow ve years’ unpaid leave. John
Lewis oers a six-month paid sabbatical to
people who have been in the company for
25 years. Companies are allowing people
to phase their retirement. Child-bearing
years will thus make up a smaller proportion
of women’s potential working lives.
Spells out of the labour force will become
less a mark of female exceptionalism.
Faster change is likely as women exploit
their economic power. Many talented
women are already hopping o the corporate
treadmill to form companies that
better meet their needs. In the past decade
the number of privately owned companies
started by women in America has increased
twice as fast as the number owned
by men. Women-owned companies employ
more people than the largest 500
companies combined. Eden McCallum
and Axiom Legal have applied a network
model to their respective elds of management
consultancy and legal services: network
members work when it suits them
and the companies use their scale to make
sure that clients have their problems dealt
with immediately.
Governments are also trying to adjust
to the new world. Germany now has 1,600
schools where the day lasts until mid-afternoon.
Some of the most popular American
charter schools oer longer school days
and shorter summer holidays.
But so far even the combination of public-
and private-sector initiatives has only
gone so far to deal with the problem. The
children of poorer working mothers are
the least likely to benet from femalefriendly
companies. Millions of families
still struggle with insucient child-care facilities
and a school day that bears no relationship
to their working lives. The West
will be struggling to cope with the social
consequences of women’s economic empowerment
for many years to come. 7

Finance and economics
52 The Economist January 2nd 2010
Deation in Japan
To lose one decade may be
misfortune
Tokyo
Twenty years on Japan is still paying its bubble-era bills
FOR many Japanese the boom years are
still seared on their memories. They recall
the embarrassing prices paid for works
by Van Gogh and Renoir; the trophy properties
in Manhattan; the crazy working
hours and the rush to get to the overcrowded
ski resorts at the weekend, only to waste
hours queuing at the lifts.
The bust, when it came, was less perceptible.
The world did not come crashing
down after December 29th 1989, the last
trading day of that decade, when the stockmarket
peaked. The next year Japanese
buyers were still paying record prices for
Impressionist art at Christie’s. It was not
until 1991 that the property bubble burst.
There was no Lehman-style collapse or
Bernie Mado-type fraud to hammer
home the full extent of the hubris.
But once the Nikkei 225 hit 38,916 points
20 years ago this week, life began to leach
out of the Japanese economy. In the third
quarter of 2009 nominal GDPthough still
vast by global standardssank below its
level in 1992, reinforcing the impression of
not one but two lost decades. Deation is
back in the headlines. On December 29th
the Nikkei stood at 10,638, 73% below its
peak, though an expansionary budget
drafted on December 25th has given it a recent
lift. Urban property prices have fallen
by almost two-thirds. Some ski apartments
are worth just one-tenth of what the
bubble generation paid for them.
What eect has this steady erosion of
value had on the psychology of Japanese
people? The bust did not lay waste to Japan,
after all, as the Depression did to
America in the 1930s. Homelessness and
suicide have risen, and life has got much
harder for young people seeking good
jobs. But Japan still has ¥1,500 trillion ($16.3
trillion) of savings, its exporters are worldclass,
and many of its citizens dress, shop
and eat lavishly. As a senior civil servant
puts it: Japanese people have never really
felt that they are in crisis, even though the
economy is slowly withering away.
For individuals the damage lies below
the surface. One of the rst bubbles to pop,
says Peter Tasker of Arcus Research, who
Twice decayed
Japan’s:
Nikkei 225
share average
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1989 95 2000 05 09
Source: Thomson Reuters
ten-year government-bond
index, ¥ terms,
December 30th 1988=100
150
140
130
120
110
100
90
80
Also in this section
53 Buttonwood: 2010 previewed
54 Have house prices fallen far enough?
55 Economics focus: Procrastination
has written several books on the bust, was
a psychological one: condence. Instead of
getting angry, people lost faith in Japan’s
economic prowess. It became all about
declining expectations and how society
coped with it, Mr Tasker says.
The mood among investors swiftly
turned risk-averse. Remarkably, retail investors
were among the rst to get out of
the stockmarket and were net sellers of equities
from 1991 to 2007, says Kathy Matsui,
chief strategist for Goldman Sachs in Japan.
Though there have been four bearmarket
share-price rallies since 1989, they
have all been driven by foreigners.
The Japanese parked their money instead
in government-backed shelters such
as the post oce, which in turn invested in
safe bonds. The result has been a 78% rally
in ten-year government bonds since their
trough in 1990 (see chart). Fixed income
has been one of the longest-duration bull
markets in the world, Ms Matsui notes.
A deationary mindset started to take
hold. With prices falling, even inert money
in the bank or post oce earned, in real
terms, a small tax-free return. Once the
banking system began to look frail, there
was a boom in the sale of safes for people
to keep their cash at home. A long period
of zero interest rates led a few to hunt for
higher yields abroad. The mythical gure
of Mrs Watanabehousewives in Japan
manage the family moneyinvested in
New Zealand dollars and Icelandic kronur.
These days she is placing large bets on Brazilian
bonds, leading to the quip that although
Tokyo failed to secure the 2016
Olympics, the Japanese will nance the
games in Rio de Janeiro anyway. Yet individual
Japanese investors are still only gingerly
returning to their own stockmarket.
The most pernicious eects of the bust,
economists say, have been transmitted via 1

The Economist January 2nd 2010 Finance and economics 53
2 banks and businesses. Banks found themselves
loaded down with non-performing
loans. Belatedly they faced up to many of
their losses, restructured and consolidated.
But according to Takuji Aida, an economist
at UBS in Japan, long-term yields remained
very low because of deationary
expectations, thereby attening the yield
curve (the dierence between short- and
long-term interest rates). That prevented
banks from earning their way out of crisis,
so lending remains weak.
Companies, meanwhile, have been focused
on paying down debt, as well as coping
with deation in the domestic econ-
Buttonwood
Choosing between workers and creditors
THE air of immediate crisis is over. The
monetary and scal doctors wheeled
out the crash trolley and applied an electric
shock to the global economy’s chest.
The patient is recovering but is still rather
too dependent on the drug of government
support. The coming year will be
dominated by a debate about how quickly
that support can be taken away.
Two shocks have reduced the standard
of living of Western economies. One is a
terms-of-trade shift. Thanks mainly to
China, the prices of the manufactured
goods that rich countries sell have fallen;
those of the commodities they buy have
risen. The other is a leverage shock, in
which the credit crisis has stopped people
from borrowing to nance consumption.
In response to this second shock, governments
have deliberately taken on the
debts of the private sector. In most cases it
has been assumed that governments
have almost limitless capacity to assume
such burdens. But you can see welfare
states as national Ponzi schemes in which
governments grant benets and take on
spending responsibilities, condent in
the expectation that the next generation
of citizens will pick up the bill.
Such promises have worked so far because
of continued economic growth and
rising populations. But with populations
starting to fall in some countries, and the
tax base shrinking in others, the strain is
starting to show. The nancial crisis has
piled on further stress. Iceland, a tiny island
state, was overwhelmed by the
debts of its banks. Dubai has shown that
the distinction between government debt
and the debt of government-controlled
entities can be a fuzzy one. Greece has
been downgraded by two rating agencies,
Fitch and Standard & Poor’s.
All this may lead to a turbulent year in
the currency markets. The idea of the
omy and competition from cut-price
imports. Large exporters were forced to restructure
and enjoyed a long boom from
2002 to 2007. But rms in more protected
areas of the domestic economy have fared
badly: protability, wages and investment
have declined in the past decade.
This has fed back to households. As
rms cut back, the proportion of full-time
contract jobs has fallen from almost 80% of
the labour force in 1990 to 66% in 2007, according
to the OECD. The proportion of
lower-paid non-regular jobs has risen correspondingly.
This is partly down to the increasing
role of women in the workforce,
Paying the price
law of volatility is that you can control
risks in some parts of the system but not in
them all. A zero-interest-rate policy has
supported risky assets, particularly equities,
while quantitative easing, by allowing
central banks to buy government bonds,
has prevented massive scal decits from
pushing up bond yields.
But having taken those two steps the
authorities cannot also prop up their currencies,
even if they had the desire to do so.
In the absence of inationary pressure, a
depreciating currency seems a painless
way of boosting the prospects of a country’s
exporters. So the American and British
authorities have been happy to let the
dollar and sterling slide.
Of course, not all currencies can depreciate.
Some must rise. By rights this should
be those of the emerging Asian economies.
But China in particular is unwilling to let
the yuan appreciate as fast as the markets,
or its trading partners, would like. That
puts even more pressure on the losers in
this game of deationary pass-the-parcel.
Brazil has reimposed a levy on capital imports
to weaken the real. Japan’s new government
has been pressuring the central
as declining wages and benets force families
to rely on two incomes. But there are
long-term social costs to this extended income
drought. The slow wear-and-tear of
the recession has made people much less
condent of their ability to nance children,
Mr Tasker says.
A weak culture of consumer borrowing
means that people have been forced to rely
even more on their savingsor those of
their parents. But as society ages, growth in
the stock of savings has dwindled. Savings
are bound to fall as more people retire. For
the younger generation the next decade
may be even tougher than the past two. 7
bank to ease monetary policy further in
the face of the strengthening yen.
In Europe the single currency has removed
the old escape route of devaluation.
Countries that have seen fasterthan-average
cost growth must accordingly
face years of austerity if their
manufacturing sectors are to remain competitive
against Germany, let alone Asia.
But will electorates be willing to swallow
such unpleasant medicine? The
temptation, as in Britain, is to attempt to
solve the crisis by raising taxes, rather
than cutting spending, especially if those
taxes can be aimed at an unpopular
group like bankers. However, a high-tax
strategy in a world of highly mobile labour
and capital seems doomed to failure
in the long run. The pain is likely to fall on
the broad mass of the population.
The battle then is between taxpayers
and public-sector workers, with the former
broadly represented by right-wing
parties (the Republicans in America, the
Conservatives in Britain) and the latter by
left-wing ones (the Democrats and Labour).
Even if the right-wing parties win
the argument in the legislature, they
could still lose on the streets, if strike action
forces governments to back down.
The gold standard broke down in the
1930s because countries would not pay
the political price, in the form of austerity,
to maintain the link. They chose domestic
workers over foreign creditors. The Bretton
Woods system broke down because
America was unwilling to bear the burden
of being the linchpin of the system.
Now, the system that prevailed in the
1980s, 1990s and 2000s, in which creditors
trusted central banks to maintain the
value of debtor countries’ currencies, is
breaking down as well.
Economist.com/blogs/buttonwood

54 Finance and economics The Economist January 2nd 2010
Global house prices
Ratio rentals
House prices are still far above their fair
value in many countriesthough no
longer in America
WHEN The Economist last published its
round-up of global house prices in
September there were only two countries
(Switzerland and China) in which prices
were higher than a year earlier. Since then
many housing markets have strengthened.
The latest survey shows that house-price
ination has turned positive in six countries,
and in Hong Kong the rate of increase
is now in double digits. Even where prices
are still falling year on year, markets are
healing. In America the S&P/Case-Shiller
index of prices in ten big cities was unchanged
in October, after ve monthly increases.
That has left prices 6.4% below
their levels 12 months earlier; go back a
year and house-price deation was almost
three times as high.
That markets are now stabilising could
suggest that prices have fallen far enough
to correct the excesses of the global housing
bubble. To test that hypothesis The
Economist has created a fair-value measure
for property based on the ratio of
house prices to rents. The gauge is
much like the price/earnings ratio
used by stockmarket analysts. Just
as the worth of a share is determined
by the present value of future
earnings, house prices
should reect the expected value
of benets that come from home
ownership. These benets are
captured by the rents earned by
property investors, which are
equivalent to the tenancy costs
saved by owner-occupiers.
Shares are deemed pricey
when the p/e ratio is above its
long-run average. Similarly,
homebuyers are likely to be overpaying
for property when the
price-to-rents ratio is higher than
normal. By that yardstick house
prices seem low in only a handful
of countries in our survey, as the
nal column in the table shows.
One is Japan, where steadily falling
property prices mean the
price-to-rents ratio is 34% below
its average since 1975. Switzerland’s
ratio is also less than its
long-run average. Germany looks
cheap as well, and since our valuation
benchmark goes back only
to 1996 and so misses out a period
when German house prices were
frothier, may be cheaper still.
The global housing bubble
Back to earth
Ratio of house prices to rents
Long-run average=100
Spain Britain United States (FHFA)
United States (Case-Shiller national index)
1975 80 85 90 95 2000 05 09
Sources: FHFA; Nationwide; Standard & Poor’s;
Thomson Reuters; government offices; The Economist
180
160
140
120
100
passed Japan and Germany by, so it is not
surprising to learn that housing is cheap
there. A more striking nding is that America’s
housing bust has taken prices back to
their long-run average value against rents.
Based on the Case-Shiller national index,
American house prices had fallen to 3% below
their fair value by the third quarter of
2009, well down from their inated values
at the start of 2006 (see chart). Another index
from the Federal Housing Finance
Agency, the regulator of Fannie Mae and
Freddie Mac, tells a dierent story. On that
The Economist house-price indicators
% change
80
60
40
Latest Q3 2008 Under(-)/
on a year earlier 1997-2009* over(+) valued †
Hong Kong 13.9 18.5 -20 +52.9
China 8.0 5.3 na +2.2
Australia 6.2 1.4 181 +50.0
South Africa 4.8 2.5 418 na
Switzerland 4.1 3.7 28 -9.0
Britain 2.7 -10.4 175 +28.8
New Zealand 1.0 -6.7 101 na
Sweden -0.4 1.8 152 +34.7
Canada -2.1 1.8 65 +20.6
Germany -3.9 -0.5 na -15.2
Japan -4.0 -1.8 -36 -33.7
United States (FHFA) -4.1 -3.9 75 +14.0
Italy -4.1 2.7 96 +15.0
United States -6.4 -17.9 98 +3.3
(Case-Shiller ten-city index)
Netherlands -7.1 nil 87 +21.2
France -8.0 0.8 132 +39.8
Spain -8.0 0.4 167 +55.1
United States -8.9 -16.4 64 -3.1
(Case-Shiller national index)
Singapore -11.0 8.3 -4 na
Ireland -13.9 -10.0 159 +29.8
Denmark -16.4 -4.6 89 +18.4
*Or most recent available figure
Sources: ABSA; ESRI; Hypoport; Japan Real Estate Institute; Nationwide; Nomisma;
NVM; FHFA; Quotable Value; Stadim; Swiss National Bank; Standard & Poor’s;
Thomson Reuters; government offices; The Economist
† Against long-run average of price-to-rents ratio
Interactive: Compare countries’ housing data over time at:
Economist.com/houseprices
basis America’s house price-to-rents ratio
is still some 14% above its average. But that
measure may not fully capture how far values
have fallen, as it excludes homes that
were paid for with subprime mortgages,
for which re sales are more common.
The correction in house prices has not
gone as far in other countries. In Britain,
where prices are increasing again, housing
still looks expensive (if not quite as dear as
in Australia). Prices in China are rising, too,
but its market does not yet look bubbly.
Hong Kong is a dierent matter. Its notoriously
volatile market is booming again,
even though the price-to-rents ratio is already
more than 50% above its historical
average. At least house prices are still falling
in the euro area’s overvalued markets,
such as France, Spain and Ireland.
No valuation measure is perfect. One
aw with the price-to-rents gauge is that it
takes no account of shifts in real interest
rates. Spain and Ireland have enjoyed far
lower real rates than they did before they
joined the euro in 1999. These might justify
smaller rental yields and thus a higher fairvalue
price-to-rents ratio than suggested by
history. That would help explain why
Spain’s price-to-rents ratio has trended upwards
over time, in contrast with Britain’s,
which has uctuated more obviously
around its long-run average.
Partly for this reason, fair-value gauges
can also be sensitive to how far
back the gures go for each country.
Ireland may look less over-
valued than Spain because the
available data go back only to
1990 and omit a period of less
bouncy markets. If the average
price-to-rents ratio is calculated
from 1990 onwards, Spain’s market
is overvalued by 24%, rather
than the 55% shown in the table
(based on gures from 1975). That
would make both markets similarly
overpriced.
In spite of these blemishes,
the price-to-rents gauge is a useful
check on how pued-up
property markets are. A housing
boom turns into a bubble when
prices are driven up by expectations
of future price gains. Scarcity
of supply or population shifts
are often used to rationalise high
house prices, but such fundamentals
should push up rents,
too. That house prices in America
are back in line with rents suggests
the worst of its correction is
over (although a further downward
leg is possible since past
housing busts have pushed
prices below their fair value and
there is a large stock of unsold
houses to clear). Europe’s housing
correction, however, seems
far from over. 7

The Economist January 2nd 2010 Finance and economics 55
Economics focus
How to combat the natural tendency to procrastinate
EACH New Year’s Day lots of people make plans to do more
exercise or give up smoking. But by January 2nd many of
them have not moved from the sofa or are lighting another cigarette.
Such triumphs of optimism over experience are common
enough. But like other examples of repeated procrastination,
they are hard to explain using standard economic models.
These models recognise that people prefer to put o unpleasant
things until the future rather than do them today. Asked on
January 1st to pick a date for that rst session in the gym, say, you
may well choose to start in two weeks’ time rather than tomorrow.
But the standard models also assume that your choices
about future actions are time-consistentthey do not depend
on when you are asked to make the choice. By January 14th, in
other words, you should still be committed to going to the gym
the next day. In the real world, however, you may well choose to
delay your start-date again.
In a 1999 paper* on the economics of procrastination, Ted
O’Donoghue and Matthew Rabin pointed out that people are often
unrealistically optimistic about their own future likelihood
of doing thingssuch as exercise or savingthat involve costs at
the time they are done, but whose benets lie even further ahead.
Mr O’Donoghue and Mr Rabin showed that this sort of behaviour
can be explained if people are time-inconsistent. Presentbiased
preferences mean that people will always tend to put o
unpleasant things until tomorrow, even if the immediate cost involved
is tiny. As long as they are unsure of the precise extent of
this bias, they believe (incorrectly) that they will in fact do it tomorrow.
But since they feel this way at each point in time, tomorrow
never quite comes. Such a model can therefore explain
endless procrastination.
It can also suggest ways to change behaviour. A recent NBER
paper by Esther Duo, Michael Kremer and Jonathan Robinson
argues that a tendency to procrastinate may explain why so few
African farmers use fertiliser, despite knowing that it raises yields
and prots. In trials on the farms of maize farmers in western
Kenya, the three economists found that using half a teaspoon of
fertiliser per plant increased seasonal prots by an average of 36%
per acre, even if farmers made no other changes to their farming
techniques. Doing so after it was clear that the seeds had sprout-
New-year irresolution
ed eliminated most of the risk of paying for fertiliser in a year of
poor weather. Only 9% of the farmers believed fertiliser would
not increase their prots. Yet only 29% had used any in either of
the two preceding seasons.
When asked why, almost four-fths of farmers said that they
did not have enough money to buy fertiliser for the land they
farmed. Yet fertiliser was readily available in multiples of a kilogram,
so even poor farmers earned enough to buy fertiliser for at
least a fraction of their elds. Better intentions made little dierence:
virtually all farmers said they planned to use fertiliser the
following season, but only 37% actually did so.
The reason for this gap between intent and action, the economists
argue, is that many farmers are present-biased and procrastinate
repeatedly. Right after the harvest, when farmers are cashrich,
most can aord to buy fertiliser. But going to town to buy it
imposes a small cost: a half-hour walk, say, or a bus ticket. So
farmers postpone the purchase, believing they will make it later.
But they overestimate their ability to put aside enough money to
do that, ensuring that their plans to buy fertiliser meet much the
same fate as a typical new-year resolution.
A model of such preferences generates several interesting predictions.
It suggests that a tiny discountenough to make up for
the small costs associated with buying fertilisershould induce
present-biased farmers to make the purchase. The model also
suggests that a given discount would be more eective if oered
immediately after the harvest rather than just before the next
planting period, by which time it would be useful only for those
farmers who had no problems with saving money.
Solving St Augustine
The economists devised a scheme in which farmers paid the full
market price for fertiliser, but had it delivered to their homes by a
non-governmental organisation at no additional cost. A subset
received this discount at harvest time, while another group
were also oered free delivery, but only when planting time was
imminent. Still others were oered a 50% subsidy on the market
price, an approach commonly taken by governments to encourage
fertiliser use. As the model of time-inconsistent preferences
predicted, the oer of free delivery early in the season pushed up
usage of fertiliser by 11 percentage points over a control group
who were not oered anything. The same discount late in the
season, however, had a statistically insignicant eect. A 50%
subsidy later in the season, a much costlier policy than free delivery,
pushed up usage by about as much as the early discount.
Interestingly, nearly half of a group of farmers who were offered
a choice picked early rather than late free delivery. Early delivery
means advance payment, with any interest that might
have been earned in the interim being forgone. Many farmers, it
seemed, were well aware of their own tendency to procrastinate
and were looking for a way to force themselves to buy fertiliser.
Such devices can help other procrastinators, too. In recent
eld trials in the Philippines some smokers who wanted to quit
were oered a commitment contract. Those who signed up put
money into a zero-interest bank account. If they passed a test certifying
that they were nicotine-free six months later, they got their
money back. If not, it went to charity. The contract increased the
likelihood of quitting by over 30% over a control group. Those
new-year resolutions need not turn to ash. 7
................................................................................................
* See papers referred to in this article at www.economist.com/procrastination

Brieng Mobile-phone culture
56 The Economist January 2nd 2010
The Apparatgeist calls
How you use your mobile phone has long reected where you live. But the spirit of
the machines may be wiping away cultural dierences
TECHNOLOGIES tend to be global, both
by nature and by name. Say television,
computer or internet anywhere
and chances are you will be understood.
But hand-held phones? For this ubiquitous
technology, mankind suers from a Tower
of Babel syndrome. Under millions of
Christmas trees North and South Americans
have been unwrapping cell phones or
celulares. Yet to Britons and Spaniards they
are mobiles or móviles. Germans and Finns
refer to them as Handys and kännykät, respectively,
because they t in your hand.
The Chinese, too, make calls on a sho ji, or
hand machine. And in Japan the term of
art is keitai, which roughly means something
you can carry with you.
This disjunction is revealing for an object
that, in the space of a decade, has become
as essential to human functioning as
a pair of shoes. Mobile phones do not
share a single global moniker because the
origins of their names are deeply cultural.
Cellular refers to how modern wireless
networks are built, pointing to a technological
worldview in America. Mobile
emphasises that the device is untethered,
which ts the roaming, once-imperial British
style. Handy highlights the importance
of functionality, much appreciated in Germany.
But are such dierences more than
cosmetic? And will they persist or give way
to a global mobile culture?
Such questions bear asking. It is easy to
forget how rapidly mobile phones have
taken over. A decade ago, there were fewer
than 500m mobile subscriptions, according
to the International Telecommunication
Union (ITU). Now there are about 4.6
billion (see chart). Penetration rates have
risen steeply everywhere. In rich countries
subscriptions outnumber the population.
Even in poor countries more than half the
inhabitants have gone mobile. Dial a number
and the odds are three to one that it will
Ubiquitous by any name
Telephones, bn
Mobile-phone
subscriptions
Fixed line
0
1997 99 2001 03 05 07 * 09*
Source: International
Telecommunication Union *Estimate
5
4
3
2
1
cause a mobile phone, rather than a xedline
one, to ring somewhere on the planet.
As airtime gets cheaper, the untethered
masses tend to use their mobiles more. In
early 2000 an average user spoke for 174
minutes a month, according to the GSM
Association (GSMA), an industry group. By
early 2009 that had risen to 261 minutes,
which suggests that humanity spends over
1 trillion minutes a month on mobiles, or
nearly 2m years. Nobody can keep track of
the ood of text messages. One estimate
suggests that American subscribers alone
sent over 1trillion texts in 2008, almost treble
the number sent the previous year.
Now a further mobile-phone revolution
is under way, driven by the iPhone
and other smart handsets which let users
gain access to the internet and download
mobile applications, including
games, social-networking programs, productivity
tools and much else besides.
Smart-phones accounted for over 13% of
the 309m handsets shipped in the third
quarter of 2009. Some analysts estimate
that by 2015 almost all shipped handsets
will be smart. Mobile operators have started
building networks which will allow for
faster connection speeds for an even wider
variety of applications and services.
All alike, all dierent
Yet these global trends hide starkly dierent
national and regional stories. Vittorio
Colao, the boss of Vodafone, which operates
or partially owns networks in 31countries,
argues that the farther south you go,
the more people use their phones, even
past the equator: where life is less organised
people need a tool, for example to rejig1

The Economist January 2nd 2010 Brieng Mobile-phone culture 57
2 appointments. Culture inuences the lifestyle,
and the lifestyle inuences the way
we communicate, he says. If you don’t
leave your phone on in a meeting in Italy,
you are likely to miss the next one.
Other mundane factors also aect how
phones are used. For instance, in countries
where many people have holiday homes
they are more likely to give out a mobile
number, which then becomes the default
where they can be reached, thus undermining
the use of xed-line phones. Technologies
are always both constructive
and constructed by historical, social, and
cultural contexts, writes Mizuko Ito, an
anthropologist at the University of California
in Irvine, who has co-edited a book on
Japan’s mobile-phone subculture.
Indeed, Japan is good example of how
such subcultures come about. In the 1990s
Americans and Scandinavians were early
adopters of mobile phones. But in the next
decade Japan was widely seen as the model
for the mobile future, given its early embrace
of the mobile internet. For some time
Wired, a magazine for technology lovers,
ran a column called Japanese schoolgirl
watch, serving readers with a stream of
keitai oddities. The implication was that
what Japanese schoolgirls did one day,
everyone else would do the next.
The country’s mobile boom was arguably
encouraged by underlying social conditions.
Most teenagers had long used pagers
to keep in touch. In 1999 NTT, Japan’s
dominant operator, launched i-mode, a
platform for mobile-internet services. It allowed
cheap e-mails between networks
and the Japanese promptly signed up in
droves for mobile internet. Ms Ito also
points out that Japan is a crowded place
with lots of rules. Harried teenagers, in
particular, have few chances for private
conversations and talking on the phone in
public is frowned upon, if not outlawed.
Hence the appeal of mobile data services.
The best way to grasp Japan’s mobile
culture is to take a crowded commuter
train. There are plenty of signs advising
you not to use your phone. Every few minutes
announcements are made to the same
eect. If you do take a call, you risk more
than disapproving gazes. Passengers may
appeal to a guard who will quietly but
rmly explain: dame desuit’s not allowed.
Some studies suggest that talking
on a mobile phone on a train is seen as
worse than in a theatre. Instead, hushed
passengers type away on their handsets or
read mobile-phone novels (written Japanese
allows more information to be displayed
on a small screen than languages
that use the Roman alphabet).
Might the Japanese stop talking entirely
on their mobiles? They seem less and less
keen on the phone’s original purpose. In
2002 the average Japanese mobile user
spoke on it for 181 minutes each month,
about the global norm. By early 2009 that
had fallen to 133 minutes, then only half the
world average. Nobody knows how many
e-mails are sent, but the Japanese are probably
even more prolic than text-crazy Indonesians,
who average more than 1,000
messages per month on some operators.
No wonder that Tokyo’s teenagers have
been called the thumb generation.
Handy if you’re thrifty
Others are quiet, too. On average Germanswho
are fond of saying that talk is
silver, silence is goldenspend only 89
minutes each month calling others for
Handy-based conversation. This may be a
result of national telephone companies on
both sides of the Berlin Wall having exhorted
subscribers for years to keep it
short because of underinvestment in the
East and rapid economic growth that overtaxed
the network in the West. Germans
are also thrifty, suggests Anastassia Lauterbach
of Deutsche Telekom. For longer
calls, she says, consumers resort to much
cheaper landlines.
In contrast, Americans won’t shut up.
Their average monthly talk-time is a whopping
788 minutes, though some of this is a
statistical illusion because subscribers also
pay for incoming calls. Yet talk is cheap:
there is no roaming charge within the United
States. Americans are often in their
cars, an ideal spot for phone calls, especially
in the many states where driving and
talking without headsets is still legal.
The chattiest of all are Puerto Ricans,
who have by far the highest monthly average
in the world of 1,875 minutes, probably
because operators on the American island
oer all-you-can-talk plans for only $40,
which include calls to the mainland. This
allows Puerto Ricans to chat endlessly
with their friends in New York, but may
also have arbitrageurs routing cheap international
phone calls through the island.
Just how people behave when talking
on a mobile phone is a question of culture,
at least at rst, according to Amapro Lasén,
a sociologist at Universidad Complutense
in Madrid. In the early 2000s she studied
phone users in the Spanish capital, in Paris
and in London. Mobiles were a common
sight, but Parisians and Madrileniens felt
freer to talk in the street, even in the middle
of the pavement. Londoners, by contrast,
tended to gather in certain zones, for instance
at the entrances of tube stations
the sort of place Ms Lasén calls an improvised
open-air wireless phone booth.
In Paris people openly complained
when bothered by others talking loudly
about intimate matters, but complaints
were rare in London. In both places, people
tended to separate phone and face-to-face
conversations, for instance by retreating to
a quiet corner. But subscribers in Madrid
often mixed them and even allowed others
to take part in their phone conversations.
The Spanish almost always take a
call and most turn o voicemail.
For Ms Lasén, who has lived in all three
cities, such variations reect how people
traditionally use urban space. In London,
she says, the streets are mainly for walking,
like the bed where the river ows. Paris,
however, is a place to stroll, the home of
the âneur. In Madrid people inhabit the
streets to talk together. As for their aversion
to voicemail, the Spanish consider it rude
to leave a call unanswered, even if it is inconvenient.
This may be the result of a
strong sense of social obligation towards
friends and family.
Elsewhere, too, culture and history may
help determine whether people talk in
public or take a call. The Chinese often let
themselves be interrupted, fearing that
otherwise they could miss a business opportunity.
Uzbeks use their mobiles only
rarely in public, because the police might
be listening. And Germans can get quite
aggressive if people disobey the rules,
even unwritten ones. In 1999 a German
man died in a ght triggered by his ill-mannered
Handy use.
Economics and other hard factors also
shape habits. Olaf Swantee, the head of
Orange’s mobile business, notes that pricey
handsets are less popular in Belgium
than in Britain because Belgian operators
have long been barred from subsidising
phones, a strategy widely used on the other
side of the Channel. Italy, however, exhibits
both low subsidies and many highend
handsets. Subscribers there do not
want to spend much on airtime, but are
keen to buy a ashy phone.
China is distinct because of economics
and relatively lax regulation. Many consumers
use shanzhai (bandit) phones,
produced by hundreds of small handsetmakers
based on chips and software from
Mediatek, a Taiwanese rm. Knock-os are
common, with labels such as Nckia and
Sumsung. Other innovative manufacturers
have developed specialised phones, for
instance handsets that can respond to two
phone numbers, or models with giant
speakers for farmers on noisy tractors.
1

58 Brieng Mobile-phone culture The Economist January 2nd 2010
2 Elsewhere the physical environment
determines which kinds of handsets prevail,
says Younghee Jung, a design expert at
Nokia, the world’s largest maker of handsets.
In hot India, for instance, men rarely
wear jackets, but their shirts have pockets
to hold phoneswhich therefore cannot
be large. Indian women keep phones in
colourful pouches, less as a fashion statement
than as a way to protect the devices
and preserve their resale value. It also
makes for a noteworthy contrast with Japan,
says Ms Jung. If women there keep
phones in a pouch and decorate them with
stickers and straps, that has nothing to do
with economics, but reects the urge to
personalise the handset. Phones are highly
subsidised in Japan and the resale value is
essentially nil, so it is not unusual to see
lost units lying in the gutter.
In some countries it is a common habit
to carry around more than one phone. Japanese
workers often have two: a private
one and a work one (which they often turn
o so bosses cannot get them at any hour).
I have one phone for work, one for family,
one for pleasure and one for the car, says a
Middle Eastern salesman quoted in a
study for Motorola, a handset-maker. Having
several phones is often meant to signal
importance. Latin American managers, for
instance, like to show how well connected
they are: some even have a dedicated one
for the boss.
As this example suggests, softer factors
may inuence the choice and design of
hardware, even for networks. If coverage
in America tends to be patchy, it is not least
because consumers seem willing to endure
a lot and changing operators is a hassle.
Elsewhere the reverse is true. Italians
demand good reception on the ski slopes,
the Greeks on their many islands and
Finns in road tunnels, however remote. If
coverage is poor, subscribers will switch.
Paradoxically, however, it is in Italy and
Greece that people are especially worried
about the supposed health risks of electromagnetic
elds. A 2007 survey commissioned
by the European Commission
found that 86% of Greeks and 69% of Italians
were very or fairly concerned
about them, compared with 51% in Britain,
35% in Germany and only 27% in Sweden.
It may be that people fret when they lack
reliable informationor that in some
countries local politicians stir up fears.
Whatever the reasons, the public reaction
explains why phone masts in Italy are
often disguised, for instance as the arches
of a hamburger restaurant, as a palm tree
or even as the cross on a famous cathedral.
In Moldova, by contrast, such masts are
monuments to prosperity. Every time we
put up a mast, they had a party. It connected
them, says Orange’s Mr Swantee.
Yet digital technologies change quickly,
and so do attitudes towards them. Will
such dierences between cultures persist
and grow larger, or will they diminish over
time? Companies would like to know, because
it costs more to provide dierent
handsets and services in dierent parts of
the world than it would do to oer the
same things everywhere.
Enter the Apparatgeist
A few years ago such questions provoked
academic controversy. Not everybody
agrees with Ms Ito’s argument that technology
is always socially constructed.
James Katz, a professor of communication
at Rutgers University in New Jersey, argues
that there is an Apparatgeist (German for
spirit of the machine). For personal communication
technologies, he argues, people
react in pretty much the same way, a
few national variations notwithstanding.
Regardless of culture, he suggests, when
people interact with personal communication
technologies, they tend to standardise
infrastructure and gravitate towards consistent
tastes and universal features.
Recent developments seem to support
him. When Ms Lasén went back to London,
Paris and Madrid a few years later,
phone behaviour had, by and large, become
the same in the dierent cities (although
Spaniards still rejected voicemail).
Yet it is not just the Apparatgeist that explains
this, argues Ms Lasén. In all three cities,
she says, people lead increasingly complex
lives and need their mobiles to
manage them. Ms Ito agrees. American
teenagers now also text madly, in part because
their lives are becoming almost as
regulated as those of the Japanese.
This convergence is likely to continue,
not least because it is in the interest of the
industry’s heavyweights. Handsets increasingly
come with all kinds of sensors.
Nokia’s Ms Jung, for instance, is working
on a project to develop an Esperanto of
gestures to control such environmentally
aware devices. Her team is trying to nd an
internationally acceptable gesture to quieten
a ringing phone. This is tricky: giving the
device the evil eye or shushing it, for instance,
will not work. Treating objects as
living things might work in East Asia,
where almost everything has a soul, but
not in the Middle East, where religious tenets
make this unacceptable.
In the long run most national dierences
will disappear, predicts Scott Campbell
of the University of Michigan, author
of several papers on mobile-phone usage.
But he expects some persistence of variations
that go back to economics. In poorer
countries subscribers will handle their
mobile phones dierently simply because
they lack money. Nearly all airtime in Africa
is pre-paid. Practices such as beeping
are likely to continue for quite a while:
when callers lack credit, they hang up after
just one ring, a signal that they want to be
called back.
A few dierences may remain within
borders, suggests Kathryn Archibald, who
works at Nokia and tries to understand
consumers in dierent parts of the world.
Only a few countries, mainly in Africa and
Asia, still need special cultural attention
when designing a phone (which is why
some models in India double as torches).
We see more dierences within countries
than between them, she says.
Nokia breaks down phone users into
various categories, rather than by geography.
Simplicity seekers barely know
how to turn on their phones and use them
only in case of trouble. At the other end of
the spectrum, technology leaders always
want the latest devices and feel crippled
without their phones. Life jugglers
need their handsets to co-ordinate the
many parts of their lives. Ms Archibald
says Nokia’s aim is to oer the right handset
to each such group.
But when it comes to contentthe services
oered via the phones and the applications
installed on themNokia pays considerable
attention to local culture. In India
and other developing countries the rm
has launched a set of services called Life
Tools, which ranges from agricultural information
for farmers to educational services
such as language tuition. In many
rich countries, by contrast, handsets come
bundled with a subscription to download
music. We need to operate globally, but be
relevant locally, concludes Ms Archibald.
All this raises a question: as dierences
fade, are people becoming slaves to the
Apparatgeist? Because of our evolutionary
heritage, we want to be in perpetual
contact with others, argues Mr Katz. Just
as technology allows people to overeat, it
now lets them overcommunicate. If this is
a problem now, imagine what would happen
if telepathy become possible. The
thought is not entirely far-fetched: researchers
at Intel, a chipmaker, are devising
ways to use brain waves to control
computers. A phone that can be implanted
in your head may be just a few years
awayat which point the Germans will no
longer be able to call it a Handy. 7

Science and technology
Renewable energy
The seat of power
Better sewage treatment is the latest thing in clean energy
WHERE there’s muck, there’s brassor
so the old saying has it. The cynical
may suggest this refers to the question of
who gets what, but thoughtful readers may
be forgiven for wondering, while they are
recovering from the excesses of Christmas
in the smallest room in the house, what exactly
happens when they ush the toilet.
The answer is encouraging. Less and
less waste, these days, is actually allowed
to go to waste. Instead, it is used to generate
biogas, a methane-rich mixture that can be
employed for heating and for the generation
of electricity. Moreover, in an age concerned
with the ecient use of energy,
technological improvements are squeezing
human fecal matter to release every
last drop of the stu. Making biogas means
doing articially to faeces what would
happen to them naturally if they were simply
dumped into the environment or allowed
to degrade in the open air at a traditional
sewage farmnamely, arranging for
them to be chewed up by bacteria. Capturing
the resulting methane has a double
benet. As well as yielding energy, it also
prevents what is a potent greenhouse gas
from being released into the atmosphere.
Tanked up
Several groups are testing ways of making
the process by which faeces are digested
into methane more ecient. GENeco, a
subsidiary of Wessex Water, a British utili-
ty company, uses heat. Instead of running
at body temperature, the rm’s process
rst stews the excrement at 40°C for several
days. It then transfers the fermenting liquid
to a tank that is ve degrees cooler.
This two-tank system produces more
methane than conventional methods because
dierent strains of bacteria, which
chew up dierent components of faeces,
work better at dierent temperatures. The
result of giving diverse groups of bugs a
chance to operate in their ideal environments
is, according to Mohammed Saddiq,
GENeco’s boss, about 30% more methane
from a given amount of excrement.
In Germany a team at the Fraunhofer
Institute in Stuttgart, led by Walter Trösch,
Flushed with pride
Electricty generated from sewage
Per person, kWh, 2007
Germany
Czech Republic
Britain
Netherlands
Finland
Sweden
Belgium
Slovakia
0 50 100 150 200 250 300
Source: Swedish Water & Wastewater Association
The Economist January 2nd 2010 59
Also in this section
60 A new source of rubber
60 Better ood defences
61 Genetics and the single vole
Tech.view, our online column on personal
technology, appears on Economist.com
on Fridays. The columns can be viewed at
Economist.com/techview
is using a dierent approach. Dr Trösch has
reduced the amount of time it takes to digest
sewage from two weeks to one, by employing
a pumped mixing system. This
works faster than traditional methods for
two reasons. The rst is that stirring the
sludge causes methane to bubble to the
surface faster. From the bacterial point of
view, methane is just as much of a waste
product as faeces are from the human
viewpoint. Encouraging this poison to escape
allows the bacteria to survive longer
and thus produce yet more methane.
The second reason is that mixing the
sludge moves bacteria away from chunks
that they have been digesting and on to
fresher material that has not had as
much bacterial contact. The result is a
quicker digestion of the whole. The Fraunhofer
pump system, which has already
been deployed in 20 sewage plants in Brazil,
Germany and Portugal, needs to operate
for only a few hours a day, so does not
require a large amount of energy.
Sadly, that is not true of the approach
used by researchers at the Tema Institute in
Linkoping University, Sweden. They are
developing a technique that employs ultrasound,
rather than pumps, to break up
the sludge. This increases methane yields
by 13% but, at the moment, the process of
generating the ultrasound consumes more
energy than it yields.
The consequence of techniques such as
these is that an ever-larger proportion of
sewage is being used as a raw material for
energy generation. Germans already process
about 60% of their faeces this way, and
the Czechs, Britons and Dutch are close behind
(see chart). GENeco reckons the gure
in Britain by the end of 2010 will have leapt
to 75%enough, when converted into electricity,
to power 350,000 homes. And the
latest thinking is to improve yields still fur- 1

60 Science and technology The Economist January 2nd 2010
2
ther by cutting out the middle man. Faeces
are food that has been processed by the human
digestive system to extract as much
useful energy as possible. An awful lot of
waste food, though, never enters anyone’s
mouth in the rst place, and this is an even
more promising source of biogas.
In America in particular numerous
sewage plants have begun processing undigested
food in large quantities over the
course of 2009. This is the result of a collaborative
policy by the country’s Environmental
Protection Agency and its Department
of Energy, to encourage the recycling
of waste food in this way. In Britain, alas,
public policy actually discourages such activity.
Waste-water facilities there must
pasteurise food scraps before they are processed,
according to Michael Chesshire,
the head of technology at BiogenGreen-
nch, a company that modies sewage digesters
to use food scraps. That is a serious
waste of brass. 7
New sources of rubber
Blow out
The tyres of the future may be made
from dandelions
OTHER than being an ingredient of the
more recherché sorts of salad, herbal
tea or wine, dandelions are pretty useless
plants. Or, at least, they were. But one species,
a Russian variety called Taraxacum
kok-saghyz (TKS), may yet make the big
time. It produces molecules of rubber in its
sap and if two research programmes, one
Tremble, Michelin, tremble
going on in Germany and one in America,
come to fruition, it could supplementor
even replacethe traditional rubber tree,
Hevea brasiliensis.
Despite the invention of synthetic rubbers,
there is often no good substitute for
the real thing, for nothing articial yet
matches natural rubber’s resilience and
strength. This is because natural-rubber
molecules, the product of a stepwise synthesis
by enzymes, have a more regular
structure than the articial ones made by
chemical engineering. Around a fth of an
average car tyre is therefore made of natural
rubber. In an aeroplane tyre that gure
can be more than four-fths. Moreover, the
price of synthetic rubber is tied to that of
the oil from which it is made, rendering it
vulnerable to changes in the oil price. Because
oil is likely to become more costly in
the future, natural rubber looks an attractive
alternative from an economic point of
view as well as an engineering one.
Natural rubber has problems, though.
Growing Hevea in the Americas is hard. A
disease called leaf blight means the trees
have to be spaced widely. Even in Asia, currently
blight-free, planting new rubber
trees often means cutting down rainforest,
to general disapproval. And trees, being
large, take time to grow to the point where
they can yield a crop. A smaller plant that
could be harvested for its rubber therefore
has obvious appeal.
One proposal is to use guayule, a shrub
that grows in arid regions and produces
rubber that is free from allergenic proteins,
which makes it useful for items such as surgical
gloves. Desert plants, however, tend
to be slow growingguayule takes two
years to mature. Yulex, a rm that has commercialised
guayule, gets an annual crop
of 400 kilograms per hectare. Hevea can
yield four or ve times that gure. Which is
where TKS could come in. Dandelions are
regarded as weeds for a reasonthey are
robust, fast-growing plants that can be
pulled up for processing and resown easily,
possibly yielding two harvests a year. If
they could be turned into usable crops,
they could outstrip even Hevea.
To this end, Christian Schulze Gronover
of the Fraunhofer Institute for Molecular
Biology and Applied Ecology in Aachen,
Germany, and his colleagues have identi-
ed the genes that allow TKS to produce usable
rubber. In particular, they have discovered
an enzyme called polyphenoloxidase
that is responsible for making its
rubbery sap coagulate.
From the plant’s point of view this coagulation
is a good thing. The evolutionary
purpose of rubber, and the reason why it
has appeared independently in plants as
diverse as trees, guayule and dandelions, is
that it gums up the mouthparts of herbivorous
insects. Human users, however, do
not want it to coagulate too soon, and Dr
Schulze Gronover has found a way to
switch polyphenoloxidase o, using a
technique called RNA interference. This intercepts
and destroys the molecular messengers
that carry instructions from the
polyphenoloxidase gene to make the enzyme,
meaning that rubber can be extracted
more easily from the plant.
Meanwhile, in America Matthew
Kleinhenz of Ohio State University is
working on increasing the yield of rubber
from TKS. Dr Kleinhenz is doing things the
old-fashioned way, growing dierent
strains of TKS, grinding up the roots (where
most of the sap is found) to see which have
the highest rubber content, and crossbreeding
the winners. His aim is to create a
plant that is both high-yielding and has
roots chunky enough to be harvested mechanically
by the sort of device now used
to pick carrots.
Combining the two approacheshightech
bioengineering and low-tech plant
breedingmay produce that rarity in the
modern world, a whole new crop species.
It would also mark a step on a journey that
some see as the way forward: a return to
the use of plant-based products that have,
briey, been overshadowed by the transient
availability of cheap oil. 7
Flood defences
Dambusterbusters
Some clever, new ways of stopping
rivers ooding
THE destruction of New Orleans by
Hurricane Katrina in 2005 showed the
importance of keeping leveesthe articial
banks that contain the ow of partly
canalised riversin tip-top condition. In
practice, though, that is hard. Levees fail for
many reasons, not all of them associated
with violent storms, and there are so many
of them (100,000 miles-worth in America
alone) that keeping an eye on all of them is
an almost impossible task. It is good, therefore,
to have a backup plan to block up unexpected
holes before they can cause too
much damage.
The traditional approach is to throw
bags lled with sand or rocks into a breach.
Such bags, though, are heavy and unwieldyparticularly
if they have to be
lled far from the breach and then carried
there. William Laska of the Science and
Technology Directorate at America’s Department
of Homeland Security has therefore
sought out alternatives. He has found
several technologies that have a common
theme: they all use water itself to help
stem the ood.
The largest of the new devices is designed
to block deep breaches. The Porta-1

The Economist January 2nd 2010 Science and technology 61
2 ble Lightweight Ubiquitous Gasket (PLUG)
is a sausage-shaped balloon made of polyester
and PVC, and tted with motorised
pumps. When dropped into a river (usually
by helicopter), PLUG’s pumps switch on
automatically and begin forcing water into
the balloon through a valve. The air thus
displaced is expelled through a second
valve until the device is 80% full, at which
point the pumps shut themselves down.
Filled thus far, PLUG is still buoyant and
will oat wherever the current carries it. If
it has been dropped in the right place, that
will be towards the breach it is designed to
ll. And there, if all goes well, it will stick
blocking the hole in a manner suitable to
its rather contrived acronym.
Prevention, however, is always better
than cure, and the second of Mr Laska’s devices
is designed to stop levees being
breached in the rst place. In this case the
acronym of choice is REPEL (Rapidly Emplaced
Protection for Earthen Levees). RE-
PEL is made of the same material as PLUG,
but instead of being thrown into the water
and carried to its destination by the current,
it is laid out at on a levee that is in
danger of being overtopped and thus eroded
by the river it is supposed to contain.
In normal circumstances merely placing
a layer of protective material on top of
a levee in this way would not do much
good. The force of the water would quickly
wash it away. However, REPEL has a series
of tubes that sit on top of it and can be
pumped full of water in a manner similar
to that employed by PLUG. The weight of
these tubes holds the protective layer in
place, while the gaps between the tubes
permit the overspill to escape. Some ooding
from that overspill resultsbut not as
much as if the spill were allowed to erode
and destroy the levee itself.
Yet simply halting oodwaters and preventing
short-term damage is not enough.
Neither PLUG nor REPEL can be used permanently.
It is the third of Mr Laska’s acronyms,
REHAB, that allows engineers to
make permanent repairs.
The Rapidly Emplaced Hydraulic Arch
Barrier, made of the same material as the
other two devices, can be put in place
around a plugged breach to keep it sealed
and dry once the PLUG has been removed.
First, the arch is lled with air and oated
to the desired location. Then, once it is in
place, it is partly ooded and allowed to
sink to the riverbed around the breach,
making a tight seal. That done, a second set
of pumps evacuates the gap between the
arch and the PLUG, allowing workers access
to the site.
Not only is installing REHAB easier and
faster than building a conventional temporary
dam, it is also less wasteful. A conventional
temporary structure is demolished
after use. REHAB can simply be oated
away and reusedit will have rehabilitated
itself, in other words. 7
Genetics
Monogamouse
Genetically modied prairie voles may
illuminate the human condition
LOVE, of course, is what makes the world
go round, but what makes love go
round? To aesthetes, such a question is imponderable.
To scientists, it is not only ponderable
but increasingly open to scrutiny
the more so now that Zoe Donaldson and
her colleagues at Emory University in Atlanta,
Georgia, have succeeded in creating
a new kind of transgenic prairie vole. For,
unlikely as it might seem, these tiny rodents
could be the key to understanding
bonding, trust and even decision-making
in humans.
For those unfamiliar with the delightful
prairie vole, it is a small rodent found in the
grasslands of central North America. What
makes it unusual among mammals is that
it is both sociable and monogamous. Prairie
voles groom each other, nest with one
another, collaborate to guard their territory
and are aectionate and attentive parents
who form, for the most part, devoted
couples. Their close relatives the meadow
voles, by contrast, prefer a solitary, promiscuous
existence.
It turns out that these large behavioural
dierences between the two species are
caused by small genetic ones. To be precise,
they have been linked to a hormone
called vasopressin and the protein molecule
that acts as its receptor. Prairie voles
have many vasopressin receptors in the reward
centres of their brains. It seems as
though these are wired up in a way that
causes the animal to take pleasure from
monogamy. In people, by contrast, certain
Behold, the moral rodent
variations of the vasopressin receptor
have been linked with rocky marriages,
and overenthusiastic journalists have
dubbed it the divorce gene.
Being able to create genetic variants of
prairie voles to order would therefore be
helpful to research. And that, as they describe
in the December issue of Biology of
Reproduction, is what Dr Donaldson and
her team have done. Using viruses as carriers,
they have introduced novel genetic
material into embryonic prairie-vole cells,
and then grown each modied cell into a
complete animal.
In this case, to prove the point, the gene
they introduced was for green uorescent
proteina molecule derived from jellysh.
This molecule, as its name suggests, glows
bright green when exposed to light of a
suitable frequency. The resulting glowing
prairie voles were evidence that the embryos
had indeed been altered, and that
the alteration had been transmitted to every
cell in the vole’s body, including its sex
cells. The ospring of such voles will therefore
carry the change as well.
Having proved the principle, Dr Donaldsonor
anybody else who wishes to
will now be able to make voles that do
more than just glow in the dark. Biologists
will thus be able to test theories about how
behaviour is governed by the vole’s various
genes. This, in turn, should help explain
complex social interactions seen in
both rodents and people.
In some cases the monogamous rodents
will, no doubt, become promiscuous.
Certainly, the reverse can happen.
One study has already shown that it is possible
to inject a viral vector for the vasopressin
receptor into the brains of the ckle
meadow voles and make them better partners
and parents. It may be some time before
such interventions are available for
human males, but women can always live
in hope. 7

Books and arts
62 The Economist January 2nd 2010
A history of the world in 100 objects
Creative impulses
A new BBC radio series shows how the things that man made can be even more
compelling witnesses to the past than the events he witnessed
MAN is one of a number of animals
that make things, but man is the only
one that depends for its very survival on
the things he has made. That simple observation
is the starting point for an ambitious
history programme that the BBC will
begin broadcasting on January 18th in
which it aims to tell a history of the world
through 100 objects in the British Museum
(BM). A joint venture four years in the making
between the BM and the BBC, the series
features 100 15-minute radio broadcasts, a
separate 13 episodes in which children visit
the museum at night and try to unlock its
mysteries, a BBC World Service package of
tailored omnibus editions for broadcasting
around the world and an interactive digital
programme involving 350 museums in
Britain which will be available free over
the internet.
The presenter is Neil MacGregor, the
BM’s director, who has moved from the
study of art to the contemplation of things.
Objects take you into the thought world
of the past, he says. When you think
about the skills required to make something
you begin to think about the brain
that made it. From the rst moment (the
ghostly magnetic pulse from a star that exploded
in the summer of 1054, as recorded
at the Jodrell Bank Centre for Astrophysics)
this series is radio at its best: inventive,
clever, and yet always light on its feet.
In the mid-17th century Archbishop
James Ussher, an Irish prelate and scholar,
totted up the lifespans of all the prophets
mentioned in the Old Testament and concluded
that the world had been created on
the night preceding October 23rd 4004BC.
Mr MacGregor, a more modern historian,
begins nearly 1.8m years before that with
the Swiss Army knife of the stone age, a
handaxe found by Louis Leakey at Olduvai
Gorge in Tanzania in the 1930s.
Discovering how to chip stones to make
a tool that would cut esh was the moment
man learned to be an opportunist.
Once invented, the handaxe would hardly
change over 1m years. It became a passport
to the world, and was carried from east Africa
to Libya, Israel, India, Korea and even
to a gravel pit near Heathrow airport
where one was buried 600,000 years ago.
Mr MacGregor is less interested in advertising
the marvels of the 250-year-old
universal museum he heads than in considering
who made the objects he discusses.
That involves drawing together evidence
of how connected seemingly
disparate societies have always been and
rebalancing the histories of the literate and
the non-literate. Victors write history; the
defeated make things, he says. This is an
especially important distinction when
considering Africa. The great Encyclopedia
Britannica of 1911 assumed that Africa
had no history because it had no written
history. The statues of black pharaohs that
Mr MacGregor discusses in an early programme,
for example, are the best visual
evidence that a Nubian tribe once seized
control of ancient Egypt and that Africans
ruled over the Nile for more than a century.
The BM’s curators spent two years
choosing the objects Mr MacGregor examines.
In particular, they sought out things
Also in this section
63 The Berlin airlift
64 A history of water
64 An Englishman on the land
Art.view, our online column on art markets,
appears on Economist.com on Saturdays.
Past and present columns can be viewed at
Economist.com/artview
that would help him draw out universal
themes. Periclean Athens, Confucian China
and Achaemenid Iran existed at moreor-less
the same time, between 500BC and
450BC. By examining objects from each
place, Mr MacGregor is able to compare
three dierent ways of constructing a highly
ecient state and nimbly reassesses
Athens in the context of the Persia it was
ghting and the China it did not yet know.
The importance of trade is another
theme. A 16th-century Aztec mosaic of a
double-headed serpent (pictured above)
exemplies the way cultures have long
been connected through the movement of
people and ideas. It is, he says, a document
of the tribute system of the empire,
with pieces of turquoise from mines that
were over 1,000 miles apart, white teeth
carved from shells found on both coasts of
Mexico, and red details made out of Spondylus,
a thorny oyster shell found 60
metres below the surface of the sea.
Silver pieces of eight were another
passport to trade, and, as the rst object of
a global economy, a key step in the history
of money. Minted in South America from
the end of the 15th century, they crossed
both the Pacic and Atlantic oceans. So
widely were these silver coins used that
interruptions in the production of silver in
Mexico and Peru had a severe knock-on
eect. In Europe silver shortages led to a
sudden massive expansion of the money
supply and the hyperination of the
mid-17th century. In China they helped
cause the collapse of the Ming dynasty.
Mr MacGregor also uses coins, the
simplest common sign of a centralised
rule, to explore the personication of
power as well as the history of money and
of trade. In the Middle East the head of the
Byzantine emperor was stamped on coins
for several centuries. But in the early 690s,
for example, Umayyad dinars from
Damascus suddenly switched from
displaying heads of rulers to showing the
shahada, the declaration of belief in the 1

The Economist January 2nd 2010 Books and arts 63
2 oneness of Allah. It was the rst time political
power, as represented by coinage, was
connected to a set of unchanging universal
ideas rather than a person.
Religion as a way of organising dierent
interests in societies is another theme.
How and why, for example, did dierent
religions acquire their own particular
look? Why does God in Judaism and Islam
have no face while Buddha is a crosslegged
man? And when do you begin seeing
the connection between the food that
man ate and the gods he worshipped?
When man started farming at the end of
the ice age was the moment his gods began
farming too. Dependent on regular seasons,
man prayed for rain, and, in Honduras,
started making statues of maize gods.
Freedom and the battles against slavery
and totalitarianism dominate the 20th century.
A Russian imperial porcelain plate
The Berlin airlift
Flying coal
A human history of the allies’ airlift that saved West Berlin
HEROISM, geopolitics and new technology
make an ideal mixture for a
popular historian. The story of the Berlin
airlift in 1948-49 has all that and more. The
Anglo-American decision to circumvent
the arbitrary Soviet closure of road and rail
routes to the German capital marked the
start of the cold war. For the rst time, the
Western allies were signalling their willingness
to resist the creeping Soviet takeover
of the eastern half of Europe. The airlift’s
end, with Soviet acceptance of a new
West German currency in West Berlin, was
a stalemate that remained in place in
Europe until the collapse of communism
40 years later.
By the end of the airlift, an astonishing
2.25m tonnes of cargo had own in and out
of the city, more than three-quarters of it
on American planes. Among the fatalities,
the proportions were rather dierent: 39
British citizens and 32 Americans.
The airlift was not just the only time in
history when large quantities of coal have
been delivered by air. It also brought leaps
in air-trac control and cargo handling. It
even featured a primitive but eective electronic
data interchange, jury-rigged from
telex machines.
But as the book’s title suggests, Richard
Reeves’s main emphasis is on the human
side. At centre-stage are General Lucius
Clay, the iron-willed military governor of
the American sector of Berlin, and the
workaholic logistics chief William Tunner,
who during the war had supervised a
showing a Leninist worker trampling on
capital and taking over a factory is one
starting point, as is a suragette penny,
with Votes for Women stamped across
the head of King Edward VII. Closer to our
own time, Mr MacGregor describes a chair
made from decommissioned guns collected
since the Mozambique civil war ended
in 1992, including AK-47s (both Russian
and Czech), a second-world-war Sten gun
and a Belgian assault rie. The BM’s throne
of weapons provides a neat symbol of the
postcolonial moment when the Soviets
and the West fought their proxy wars
across the continent.
Of the 100 objects, only one has not
been selected yet. Mr MacGregor is waiting
until the last possible moment to pick
out the best symbol of our own time. Suggestions,
please, on a postcard to: British
Museum, London WC1B 3DG. 7
Daring Young Men: The Heroism and
Triumph of the Berlin Airlift, June
1948-May 1949. By Richard Reeves.
Simon & Schuster; 304 pages; $28 and
£16.99
trans-Himalayan military airlift. Behind
them stands the gure of Harry Truman,
the American president who overruled his
entire military, diplomatic and security
sta to insist that Berlin be saved.
The veterans’ stark descriptions of ying
in foul weather, the exhaustion and
danger, the rickety under-maintained aircraft
and the newly wed brides stranded
Learning to chew gum
on the other side of the world, are undimmed
by time. (Indeed, in some cases, a
sceptical reader might wonder if memory
has honed the wisecracks and dialogues,
transcribed verbatim after 60 years.)
In Berlin and the other Western-occupied
parts of Germany, the airlift marked
the start of a shift from life as a defeated
and distrusted adversary to one as an
inseparable friend and American ally. At
the beginning of the blockade, Berliners
were still a brutalised and resentful subject
people, expected to do their caps to the
occupying forces. A year later, they were
still cold and hungry and living in
bombed-out cellarsbut cheering the airmen
who had saved them from starvation
and slavery. Had the airlift failed, the
revenge of the communist authorities on
those contaminated by contact with the
Western allies would have been ruthless.
In passing, Mr Reeves mentions some hapless
policemen from West Berlin arrested
at the city’s town hall (in the Soviet sector);
most were never seen again.
In one of the many compelling
vignettes the author describes how the
allies hired German mechanics and loading
hands. Only three years earlier, American
or British pilots shot down over Germany
risked being lynched. Now they
were trusting their lives to the Germans
who maintained their planes and stacked
the cargo.
Although highly readable, the book
includes no groundbreaking historical
research. It mentions no German-language
sources. A prolic American author, Mr
Reeves is writing for a home audience. But
he gamely tries to widen his focus to include
at least a bit of the British viewpoint.
Few Americans will know that rationing
in Britain was worse after the war than
during it, making the cost of the airlift
sharply greater. American pilots liked to
drop sweets in little parachutes as a personal
gift to the hungry children waiting at
the airport’s edge. Their British counterparts
had no sweets. 7

64 Books and arts The Economist January 2nd 2010
Water
Through the
aqueous humour
Water. By Steven Solomon. Harper; 563
pages; $27.99. Harper Collins; £18.99
TO WRITE a history of water was a good
idea. Since life depends on water, it has
been man’s constant companion from the
moment his forebears emerged from the
sea and, you could say, even before. Human
aairs have therefore been intricately
related to water. But man has mistreated
his friend, and now, it is said, the world
faces a water crisis. There is too much of it
in some places, too little in others. It has
been acidied, dirtied and squandered. It
should no longer be taken for granted.
The rst three-quarters of Steven Solomon’s
book is an account of the ascendancy
and decline of various civilisations,
seen through a watery lens. The survey
starts in antiquity with Egypt, Mesopotamia
and the areas round the Indus and the
Yellow River. It runs through the Roman
empire, the building of China’s Grand
Canal in the seventh century and the
Islamic era that followed. Then come the
stirrings of mechanical development in
medieval Europe that preceded the invention
of the steam engine in Britain, the
arrival of the industrial age and the mass
production, and consumption, of the
American century. Along the way the reader
learns about aqueducts, dams, canals,
waterwheels and devices for lifting water,
as well as sanitary inventions, naval
battles and maritime voyages of discovery.
The thesis is that enduring civilisations are
underpinned by eective water control.
As a contention, this may seem banal,
yet the tour d’horizon might also have been
a tour de force. One diculty, though, is
that Mr Solomon so often strains to make
water more important than it actually was.
The Roman empire, it seems, fell apart
because it lacked the unifying impetus
of an inland waterway like China’s. It was
hydroelectric power, ie, water, that powered
the aircraft factories and aluminium
smelters that in turn played a decisive
role in America’s victory in the second
world war. Sewers and piped water gave
the West comparative economic and
politically legitimising advantages over its
cold-war rivals. The distance-shrinking
Panama Canal was another triumph for
water. And it was water, or rather its
absence, that obliged eighth-century Islam
to go out and trade and conquer. Indeed,
the Muslims’ use of camelsa proxy for
the precious liquidin crossing deserts just
showed the importance of water. No
surprise then to learn that the dening
geographical condition of America’s Far
West was not its Far Westernness but, yes,
water scarcity.
Matching the over-claiming is the overwriting.
Clashes are existential, audacity is
breathtaking. Almost every change is a
revolution, every expansion an explosion.
Catalysts abound. Indeed, water, it is said
at the outset, has an extraordinary capacityto
catalyse essential chemical reactions,
making it the Earth’s most potent
agent of change. In truth, water is hardly
ever a catalyst in ordinary conditions.
In other respects, the problem is under-,
not over-performance. The 97.5% of water
that is salty, for example, is hardly considered,
except as a means of transport. This
leaves quite a hole in a history of water.
And though much is made of the steam
engine, ice scarcely merits a mention.
In the last quarter of the book, Mr Solomon
abandons history and turns to the
Biography
Another eld
The Plot: A Biography of an English Acre.
By Madeleine Bunting. Granta; 304 pages;
£18.99
IN 1944in fact, on D-DayMadeleine
Bunting’s father, then just 16 years old,
stumbled on a small green patch, with a
ruined farmhouse, in the Hambleton
hills on the edge of the North York
Moors. Here, over subsequent years, he
built a chapel, decorating it with his own
muscular sculptures of Noah, the Virgin
and an Unknown Soldier. This place,
the Plot, became a site of family pilgrimages
and picnics, tense, happy and
haunted all at once. While his marriage
water shortages of today and the political
clashes they may cause. Competition for
Nile water is acute between Egypt and
Ethiopia. Fierce disputes also divide Turkey
and its southern neighbours in the Jordan
basin. With India and China, both prodigious
consumers of ever-scarcer fresh
water, the rivalries are mostly, though not
entirely, internal. And in many places,
notably the United States, north Africa and
the Middle East, aquifers whose water
may have lain undisturbed for 10,000 to
75,000 years are now being recklessly
drained, with no prospect of a rell for an
aeon or two. Everywhere it is the poor
who suer most.
Mr Solomon is not despairing. He gives
some reasons for hope. Too bad he did not
devote more of his book to the present and
the future, and to the policies that could
alleviate the situation he describes. 7
disintegrated, John Bunting’s love for the
Plot endured. His daughter has written
the story of this tiny patch of land as a
way of understanding the father she
never really knew.
The Plotlike most acres in welltrampled
Englandhas had a busy history.
Stone-age man left arrowheads
there; bronze-age man built barrows.
William the Conqueror got lost on the
moors nearby. Herds of cattle came
down the drovers’ road that crosses it.
White-robed Cistercian monks from
Byland Abbey tilled the soil, and Scottish
forces in 1322 defeated the English army.
More recent invaders have included
grouse-shooters, tourists and that bane
of Britain’s wild places, the Sitka spruce,
marching in regular plantations. The
countryside around it has shrunk, and
now the farmers are leaving. The Plot
remains as Ms Bunting’s father intended
it, a sanctuary from the chaos and rottenness
of the world, tenderly lled with
handcrafted monuments in the style of
the vanished monks.
As a way of analysing a dicult relationship,
this book is a wonderful device.
Though she is focusing on the landscape,
not the man, Ms Bunting gets very deep.
She comes to understand her father’s
grim embrace of beauty and continuity,
and his guilt at being left alive after others
died during the war. The Plot could
be shorter: much of the social commentary
gets humdrum after a while. But as it
stands it also provides a contemplative,
wistful and sometimes disturbing view
of England.

Obituary
Oral Roberts
Oral Roberts, preacher and televangelist, died on December 15th, aged 91
THE rst time Oral Roberts heard Jesus’s
call on his life, he was 17 and had been
bedfast with TB for ve months. He was a
stuttering, faltering, disbelieving young
man, much like the young Moses in his
pride. But as his impoverished family knelt
round his bed in their cabin in the dust of
Oklahoma, praying a desperate prayer to
the Lord, he saw his father’s face fade into
the countenance of Jesus. It broke him up.
He had never seen Jesus before, though
his preacher-father and his mother often
spoke with Him, and he knew Him as a
friendly presence, unlike terrifying God.
His sins ooded up within him and he
wept out his repentance, crying Jesus, I’ll
even preach for you if you’ll save my soul.
Jesus took him up on it. Mr Roberts next
saw Him, in 1980, as he stood praying by a
giant unnished skyscraper in Tulsa. This
was his City of Faith Medical Centre, built
on the Lord’s instructions but running into
nancial delays. He was now a rich man,
in an Italian silk suit and with solid gold
bracelets on his wrists. His annual income
from donations was $120m; he bought a
new Mercedes every six months, and had
a luxury home in Palm Springs. His inspirational
shows were broadcast on hundreds
of radio and TV stations. Richard
Nixon and Elvis Presley had sought his
spiritual counselling, as had millions of
other hurting people. But Jesus towered
over all this. He was 900 feet tall, with eyes
that burned to the very pit of Mr Roberts’s
soul. He assured him the Centre would be
nished and, just to show him how easy it
would be, He picked it up.
These encounters stoked high the re of
the spirit in Mr Roberts, enabling him to
travel and broadcast coast to coast and as
far as Australia with a heavy anointing. But
they were not strictly necessary. God
spoke to Mr Roberts all the time. He told
him to preach from the age of 18 in sweltering
3,000-seater tents across the southwest,
and in 1954 to let the television cameras
in, so that the Pentecostal spirit rolled
all across the land. He told him he could
heal with his right hand, know the number
and names of demons, and cast them out,
so that thousands saw him in sweatsoaked
shirt and tie gripping and wrenching
the believers and yelping, weeping his
praise (Oh God, loosen that little foot up!
Glory to God! Glory to God!). Mr Roberts
was empowered to heal via TV screens
and through prayed-over handkerchiefs
sent by the mail. The Lord told him to build
a major university: the result was Oral
Roberts University in Tulsa, with 5,400 students
who, by a miracle, neither drank nor
fornicated. There in the Prayer Tower, under
the eternal gas ame, Mr Roberts
The Economist January 2nd 2010 65
prayed for all who asked him to.
Most insistently, God told Mr Roberts
that He wanted him to be rich. One day in
1947, when he had pranged his car, Mr Roberts
opened the Bible to 3 John 2: I wish
above all things that thou mayest prosper
and be in health, even as thy soul prospereth.
Almost instantly, he found he could
aord a Buick, rather than one of those
smaller economy cars. He began to preach
that word. God would return a miracle
harvest from the seed sown (1Cor. 3: 7; Gal.
6: 7-9). Every dollar given to the Oral Roberts
Evangelistic Associationor $30,
Amex, Visa, whatever the Lord leads you
to dowould eventually return to the giver
multiplied as much as a hundredfold.
Those who doubted could survey the ORU
campus at 7777 South Lewis, and see what
God had wrought through the man who
was now a director of the Tulsa Chamber
of Commerce and the Bank of Oklahoma.
Weeping and fasting
To help the process along, his followers
were sent sachets of healing water to
anoint their wallets, as well as any part of
their body where they had need. Mass
mail-outs and computerised lists were mobilised,
for the rst time, to do the Lord’s
work. The Precious Seed sent in return
ended up with Mr Roberts, but Do ye not
know that they which minister about holy
things live of the things of the temple? (1
Cor. 9: 13).
Yet God also worked in mysterious
ways, for His thoughts were higher than
men’s thoughts (Isaiah 55: 9). In 1986 He ordered
Mr Roberts to send out medical missionaries
in His Name, and to raise $8m in
scholarships for them, or He would call
him home. Mr Roberts prayed, fasted,
wept on prime time and raised the money,
but the City of Faith closed down within
two years, despite what Jesus had assured
him. God said: I did not want this merging
of My healing streams of medicine and
prayer localised in Tulsa. God also decreed
that Mr Roberts should be persecuted
for this eort, as well as for saying that
he once had to interrupt a sermon to raise a
child from the dead.
Over the years therefore the harvest appeared
to dwindle in dollar terms, and his
debts grew. But Mr Roberts was still elegant,
with a ne head of hair lled with the
Holy Spirit. A multitude of preachers and
healers had been raised up in his image,
with their own TV shows and motivational
books, to carry on the work. And God
spoke to him one last time, telling him that
although his heavenly home was prepared,
he was not about to be taken from
Oklahoma. He would rule and reign over
the ORU campus until the end of time,
when hoodlums and sodomites and disbelievers
together would be repaid for
laughing at him with everlasting re. 7

66
Courses
Announcements
The Economist January 2nd 2010

Appointments
NAMED PROFESSORSHIPS
at BILKENT UNIVERSITY
Bilkent University in Ankara, Turkey, invites applications and
nominations for Named Professorships in the fi elds of International
Relations, Economics, and Education. The applicants/nominees are
expected to have an excellent scholarly publishing record. Although
these positions are meant to be permanent, possibilities for shorterterm
visiting appointments may also be considered for interested
candidates of distinguished record.
Bilkent University is the leading research university in Turkey
(www.bilkent.edu.tr). The language of instruction is English. It houses
the best library and electronic access available in Turkey, and has many
other facilities like a state-of-the art sports facility on campus. It has its
own symphony orchestra that performs nationally and internationally.
An international PreK-12 school on campus offers PYP, IGCSE and IB
curricula. Rent-free furnished accommodation on campus, roundtrip
tickets, participation in a savings fund and membership in a
fairly comprehensive health plan are among the benefi ts. Salary is
competitive and commensurate with the credentials. The positions
entail a research fund useable for attending international conferences
as well as organizing various scholarly activities at Bilkent.
The applications/nominations, accompanied by a current cv and
names and contact details of three references, should be sent
by post or by email to: Professor Metin Heper, Dean, Faculty of
Economics, Administrative and Social Sciences, Bilkent University,
Bilkent 06800, Ankara, Turkey (heper@bilkent.edu.tr).
Review of applications will begin immediately.
The Economist January 2nd 2010
ECONOMISTS
£Competitive + excellent benefi ts package
Location: London, UK
As a world leader in fi nding, mining and processing the earth’s mineral resources, Rio Tinto supplies essential metals and minerals
that the world relies upon. Our operations are diverse, both geographically and by commodity, but what we share as a group is our
commitment to excellence and achievement, underpinned by a responsible and sustainable approach to business and community.
We are currently seeking two Economists to join our Economics Department, based in our global head offi ce in London. As a
member of the Economics team you will identify, set and lead the market research activity and agenda across the group for your
assigned commodities. Through your analysis and insights you will help shape the direction of our business and provide input into
strategic decision making at all levels of the group. This will entail conducting in-depth research in collaboration with colleagues
across our global operations, encouraging best practice in the application of economic methodologies and presenting your fi ndings
to the business.
As an economics graduate with a minimum 2:1 degree or equivalent, and preferably a higher level of qualifi cation, you’ll have a
strong track record of success as an economist or in a related role in a resource company, government function or consultancy.
Excellent verbal and written communication skills will be required as well as high levels of accuracy and attention to detail.
Energy Economist:
Working with the Principal Energy Economist you will focus specifi cally on the energy industry and energy commodities. Taking
the lead on certain aspects of research, market analysis and project evaluation prices, a strong knowledge of energy markets is
essential.
Metals Economist:
You will focus primarily on the research and analysis of base and precious metals markets as well as work on broader industry and
macroeconomic issues. Previous knowledge of metals markets is preferable but not essential.
Interested candidates should send a CV to the following link:
https://riotinto.taleo.net/careersection/4/jobdetail.ftl?lang=en&job=Lon0001Q
Closing date: 15th January 2010
United Nations Development Programme Afghanistan
UNDP Afghanistan is supporting the Government to fi nd innovative solutions to its
development challenges. Key priority areas for UNDP assistance are in strengthening
democratic governance, crisis prevention and recovery and reducing poverty. UNDP is Afghanistan
strengthening the institutional capacities of key national government and sub-national authorities
which aim to enhance human security, human development, peace and stability in Afghanistan.
The Afghanistan Sub-national Governance Programme (ASGP) is the UNDP’s fl agship governance
programme and plays a key role in developing the institutions and systems to ensure effective
implementation of the sub-national governance strategies outlined in the Afghan National
Development Strategy and the Afghanistan Compact. The Afghanistan Sub – National Governance
Programme (ASGP) works with and through the Government of Afghanistan to build the institutional
structures required for effective service delivery at the central, provincial, district, and municipal
levels. UNDP Afghanistan is seeking to fi ll the following posts:
Afghanistan Sub – national Governance Programme (ASGP)
Technical Specialist (Governance, ASGP) (fi ve regional posts), P4 level
The selection criteria and background for the positions are:
• Master’s Degree in Urban or Regional Development, Economics, or Public Administration
or related fi eld with at least 7 years of relevant work experience;
• Experience in management, public reform, and organisational development in sub-national
governance, decentralization or local autonomy, preferably in developing countries;
• Experience in providing strategic policy advice to government offi cials in local
administration and decentralisation. Ability to lead strategic planning, results-based
management and reporting;
• Proven ability to build partnerships among partner governments, donors and other key
stakeholders on policy and strategic issues, and strong communication skills.
Technical Specialist (Provincial Governance, ASGP) (two regional posts) P3
The selection criteria and background for the positions are:
• Master’s Degree in a fi eld relevant to Urban or Regional Development, Economics, or Public
Administration.
• Minimum of 5 years of relevant experience in development in a governmental, multilateral or
civil society organization in a multi-cultural setting, preferably in the context of sub-national
governance and reform, decentralization or local autonomy;
• Experience in design, monitoring and evaluation of local development projects is desirable;
• Professional experience in preparation of presentations and other communication or training tools.
An internationally competitive compensation package, inclusive of local living conditions
allowance, is offered for the post.
Detailed job description and selection criteria can be found at
http://www.undp.org.af/Jobs/index.htm
UNDP is an equal opportunity employer and encourages applications from female candidates.
67

68
Tenders
THE MINISTRY OF TOURISM OF THE
ARAB REPUBLIC OF EGYPT - TOURISM
DEVELOPMENT AUTHORITY (TDA)
REQUEST FOR EXPRESSION OF INTEREST FOR THE
DEVELOPMENT OF TOURIST SITES IN WEST CAIRO
The Tourism Development Authority (TDA) wishes to inform private investors on
the opportunity to become, through a competitive bidding process, the real estate
developers and investors of two different plots of land located in the Western part of
the Greater Cairo area (the “Projects”). The fi rst plot overlooks the Great Pyramids of
Giza (~5 km) and has a size of ~2.3 sq.km. The second plot has a size of ~4.6 sq.km.
Both plots are intended to be mixed use developments including tourist (hotels, cultural
and entertainment facilities), retail, residential (villas, townhouses and apartments) and
offi ce space elements.
Prospective investors are requested to send their Expression of Interest for the Projects
in English no later than 15th January 2010, 1 p.m. Cairo time to: Eng. Khaled Mohamed
Makhlouf, Tourism Development Authority, 21 Giza street, Nile Tower Building, 7th
fl oor, Giza, Egypt or aelkhadem@tourism.gov.eg.
The Expression of Interest (maximum 50 pages) should include (i) the name and
contact details (including e-mail address) of the individuals who may be contacted in
relation to this request, (ii) a description of the prospect investor’s profi le (including
consolidated audited fi nancial statements for last 3 years and details of highly qualifi ed
staff permanently employed with the company), (iii) a description of similarly
developed projects (in terms of type of development and/or in the MENA region) and
(iv) any other relevant information.
By 19th January 2010, a short list of prospective investors will be invited to attend a
Road Show that will be held in Cairo and in other relevant locations on January 24 -28,
2010. Prospective investors will then be invited to submit their proposal following the
issuance of a Request For Proposal (RFP).
TDA reserves the right, without incurring any liability, to change without prior notice
the process (including postponing or terminating it) as described herein, and to exclude
any prospect investor from further consideration at any stage of the process without
disclosing the reason for such exclusion.
For further information please contact: aelkhadem@tourism.gov.eg
Business & Personal
OFFSHORE COMPANIES
OFFSHORE TRUSTS
SWISS TRUST COMPANIES
OFFSHORE FOUNDATIONS
OFFSHORE BANKING
www.GLOBAL-MONEY.com
Readers are Recommended
to make appropriate enquiries and take appropriate advice before sending
money, incurring any expense or entering into a binding commitment in
relation to an advertisement. The Economist Newspaper Limited shall
not be liable to any person for loss or damage incurred or suffered as a
result of his / her accepting or offering to accept an invitation contained
in any advertisement published in The Economist.
The Economist January 2nd 2010

Economic and nancial indicators
Overview
The S&P/Case-Shiller index of home prices in
ten big American cities was unchanged in
October, leaving it 6.4% lower than a year
earlier. Before stalling in October, prices had
edged up in each of the previous ve months.
The housing sales gures were mixed. New
home sales fell by 11. 3% in November but
existing home sales rose by 7.4%.
Consumer condence in America increased
in December, according to the measure
published by the Conference Board, a research
rm. Its index rose from 50.6 to 52.9.
America’s GDP growth was revised down for a
second time. The economy is now thought to
have grown at an annualised rate of 2.2% in
the third quarter, less than the previous
estimate of 2.8%.
The decline in Britain’s GDP in the third
quarter of 2009 was revised to 0.2% from an
earlier estimate of a 0.3% fall. The economy
has shrunk by 5.1% since the third quarter of
2008. The current-account decit widened to
£4.7 billion ($7.7 billion) from £4.4 billion,
or 1.3% of GDP, in the third quarter.
Business condence in Italy rose to its highest
for more than a year in December. The
ISAE Institute’s manufacturing-sentiment
index rose to 82.6, from a revised reading of
79.4 in November.
Industrial production in Japan increased for
a ninth consecutive month in November, by
2.6%. The consumer price index, excluding
fresh foods, fell by 1.7% in the year to
November. That compares with a fall of 2.2%
in the year to October.
Indicators for more countries, as well as
additional series, can be found at
Economist.com/indicators
GDP growth forecasts, 2010, %
Fastest ten Slowest ten
Qatar
Turkmenistan
Azerbaijan
China
Uzbekistan
Congo-
Brazzaville
Angola
Ethiopia
India
Sri Lanka
0 2 4 6 8 10 12
Source: Economist Intelligence Unit
24.5
Output, prices and jobs
% change on year ago
Gross domestic product
latest qtr* 2009
Industrial
production
Consumer prices Unemployment
† 2010 † latest latest year ago 2009 † rate ‡ , %
United States –2.6 Q3 +2.2 –2.5 +2.7 –5.1 Nov +1.8 Nov +1.1 –0.4 10.0 Nov
Japan –5.1 Q3 +1.3 –5.4 +1.5 –3.9 Nov –1.9 Nov +1.0 –1.3 5.2 Nov
China +8.9 Q3 na +8.2 +8.6 +19.2 Nov +0.6 Nov +2.4 –0.8 9.2 2008
Britain –5.1 Q3 –1.2 –4.5 +1.3 –8.4 Oct +1.9 Nov § +4.1 +2.1 7.9 Oct ††
Canada –3.2 Q3 +0.4 –2.5 +2.4 –12.4 Sep +1.0 Nov +2.0 +0.4 8.5 Nov
Euro area –4.1 Q3 +1.5 –3.8 +1.2 –11.1 Oct +0.5 Nov +2.1 +0.4 9.8 Oct
Austria –3.7 Q3 +2.1 –3.4 +1.0 –13.7 Sep +0.7 Nov +2.3 +0.5 4.7 Oct
Belgium –3.4 Q3 +2.0 –3.0 +1.4 –12.7 Sep –0.1 Nov +3.1 +0.1 11.9 Oct ‡‡
France –2.3 Q3 +1.0 –2.1 +1.3 –8.4 Oct +0.4 Nov +1.6 +0.1 10.1 Oct
Germany –4.8 Q3 +2.9 –4.9 +1.6 –12.4 Oct +0.7 Dec +1.1 +0.3 8.1 Nov
Greece –1.7 Q3 –1.7 –2.5 +0.2 –9.3 Oct +2.0 Nov +2.9 +0.1 9.1 Sep
Italy –4.6 Q3 +2.3 –4.8 +0.9 –11.8 Oct +0.7 Nov +2.7 +0.8 7.8 Q3
Netherlands –3.7 Q3 +1.7 –3.9 +1.3 –7.1 Oct +1.0 Nov +2.3 +1.1 5.3 Nov ††
Spain –4.0 Q3 –1.2 –3.6 –0.1 –12.9 Oct +0.3 Nov +2.4 –0.3 19.3 Oct
Czech Republic –4.1 Q3 +3.3 –4.3 +0.9 –7.2 Oct +0.5 Nov +4.4 +1.1 8.6 Nov
Denmark –7.2 Q2 –9.9 –4.6 +1.0 –13.9 Oct +1.3 Nov +2.7 +1.3 4.2 Oct
Hungary –7.1 Q3 –6.9 –7.0 –1.0 –10.8 Oct +5.2 Nov +4.2 +4.8 10.4 Oct ††
Norway –0.7 Q3 +3.5 –1.8 +1.4 –4.9 Oct +1.5 Nov +3.2 +2.3 3.1 Sep §§
Poland +1.7 Q3 na +1.0 +1.9 +9.8 Nov +3.1 Oct +4.2 +3.4 11.4 Nov ‡‡
Russia –8.9 Q3 na –7.0 +2.5 +1.5 Nov +9.1 Nov +13.8 +12.2 7.7 Oct ‡‡
Sweden –5.0 Q3 +0.7 –4.6 +1.9 –16.1 Oct –0.7 Nov +2.5 –0.3 8.0 Nov ‡‡
Switzerland –1.5 Q3 +1.2 –1.7 +1.0 –6.7 Q3 nil Nov +1.5 –0.5 4.1 Nov
Turkey –3.3 Q3 na –5.7 +3.0 +6.5 Oct +5.5 Nov +10.8 +5.9 13.4 Sep ‡‡
Australia +0.5 Q3 +0.8 +0.8 +2.7 –3.8 Q2 +1.3 Q3 +5.0 +1.9 5.7 Nov
Hong Kong –2.4 Q3 +1.6 –3.2 +2.7 –8.6 Q3 +0.5 Nov +3.1 –0.3 5.1 Nov ††
India +7.9 Q3 na +5.5 +6.3 +10.3 Oct +11.5 Oct +10.4 +9.8 9.1 2008
Indonesia +4.2 Q3 na +4.2 +4.5 +2.8 Oct +2.4 Nov +11.7 +4.7 8.1 Feb
Malaysia –1.2 Q3 na –2.4 +3.9 +0.7 Oct –0.1 Nov +5.7 +0.4 3.6 Q2
Pakistan +2.0 2009** na +3.7 +2.4 –2.6 Sep +10.5 Nov +24.7 +14.2 5.2 2008
Singapore +0.6 Q3 +14.2 –4.5 +3.8 –8.2 Nov –0.2 Nov +5.5 +0.5 3.4 Q3
South Korea +0.9 Q3 +13.6 –1.0 +2.8 +17.8 Nov +2.4 Nov +4.5 +2.8 3.5 Nov
Taiwan –1.3 Q3 na –3.6 +3.5 +31.5 Nov –1.6 Nov +1.9 –1.1 6.0 Nov
Thailand –2.8 Q3 +5.5 –4.3 +3.3 +1.3 Oct +1.9 Nov +2.2 –0.9 1.2 Sep
Argentina –0.3 Q3 +0.2 –0.5 +1.4 –3.6 Oct +7.1 Nov +7.9 +6.2 9.1 Q3 ‡‡
Brazil –1.2 Q3 +5.1 nil +3.8 –3.2 Oct +4.2 Nov +6.4 +4.9 7.4 Nov ‡‡
Chile –1.6 Q3 +4.6 –1.2 +3.5 –6.6 Oct –2.3 Nov +8.9 +1.9 9.7 Oct ††‡‡
Colombia –0.5 Q2 +2.7 +0.2 +2.4 –2.8 Oct +2.4 Nov +7.7 +4.5 12.6 Jul ‡‡
Mexico –6.2 Q3 +12.2 –7.1 +3.0 –5.2 Oct +3.9 Nov +6.2 +5.3 5.3 Nov ‡‡
Venezuela –4.5 Q3 na –3.0 –3.4 –19.8 Oct +28.6 Nov +32.7 +27.3 8.3 Q3 ‡‡
Egypt +4.9 Q3 na +4.7 +4.5 +6.4 Q2 +13.3 Nov +20.3 +10.1 9.3 Q3 ‡‡
Israel –0.8 Q3 +2.2 –0.1 +2.4 –3.1 Sep +3.8 nil +2.9 +3.4 7.8 Q3
Saudi Arabia +4.4 2008 na –1.0 +3.3 na +3.5 Oct +10.9 +4.3 na
South Africa –2.1 Q3 +0.9 –2.2 +3.1 –9.3 Oct +5.8 Nov +11.8 +7.2 24.5 Sep ‡‡
*% change on previous quarter, annual rate. † The Economist poll or Economist Intelligence Unit estimate/forecast. ‡ National definitions.- § RPI inflation
rate 0.3 in November. **Year ending June. †† Latest three months. ‡‡ Not seasonally adjusted. §§ Centred 3-month average
Hungary
Jamaica
Barbados
Estonia
Belarus
Ireland
Latvia
Puerto Rico
Venezuela
Lithuania
4 3 2 1 – 0
The Economist January 2nd 2010 69
The Economist commodity-price index
2000=100
% change on
one one
Dec 15th Dec 22nd* month year
Dollar index
All items 212.9 211.3 +2.2 +37.3
Food 214.4 210.2 +1.2 +15.4
Industrials
All 211.1 212.8 +3.4 +81.2
Nfa † 177.0 176.9 +2.4 +58.1
Metals 229.6 232.3 +3.9 +92.9
Sterling index
All items 198.5 201.1 +6.3 +26.6
Euro index
All items 135.3 137.3 +7.3 +34.5
Gold
$ per oz 1126.60 1079.50 –7.4 +28.5
West Texas Intermediate
$ per barrel 70.72 77.78 +3.8 +98.9
*Provisional † Non-food agriculturals.

70 Economic and nancial indicators The Economist January 2nd 2010
Trade, exchange rates, budget balances and interest rates
Trade balance*
latest 12
Current-account balance
latest 12 % of GDP Currency units, per $
Budget
balance
% of GDP
Interest rates, %
3-month 10-year gov’t
months, $bn months, $bn 2009 † Dec 29th year ago 2009 † latest bonds, latest
United States –523.9 Oct –465.3 Q3 –3.1 – – –11.9 0.18 3.81
Japan +27.9 Oct +126.5 Oct +2.7 91.9 90.2 –7.7 0.34 1.27
China +218.4 Nov +364.4 Q2 +6.1 6.83 6.84 –3.4 1.83 3.70
Britain –126.8 Oct –28.2 Q3 –1.9 0.63 0.69 –14.5 0.66 4.17
Canada –3.4 Oct –34.8 Q3 –2.7 1.04 1.22 –2.4 0.19 3.80
Euro area +14.5 Oct –109.6 Oct –0.9 0.69 0.71 –6.5 0.71 3.36
Austria –6.4 Sep +9.2 Q2 +1.0 0.69 0.71 –5.7 0.72 3.81
Belgium +16.6 Oct –11.8 Jun –2.0 0.69 0.71 –6.0 0.73 3.64
France –55.6 Oct –61.3 Oct –2.0 0.69 0.71 –8.2 0.72 3.55
Germany +168.8 Oct +143.1 Oct +3.8 0.69 0.71 –4.6 0.72 3.35
Greece –44.7 Sep –37.1 Oct –6.6 0.69 0.71 –6.8 0.72 5.72
Italy –6.0 Oct –72.6 Oct –3.0 0.69 0.71 –5.3 0.72 4.02
Netherlands +46.6 Oct +34.8 Q3 +5.8 0.69 0.71 –4.7 0.72 3.51
Spain –76.7 Sep –87.1 Sep –5.7 0.69 0.71 –10.8 0.72 3.95
Czech Republic +6.6 Oct –2.6 Oct –2.1 18.3 18.8 –4.8 1.54 3.93
Denmark +8.0 Oct +11.2 Oct +2.2 5.17 5.27 –2.8 1.55 3.62
Hungary +5.2 Oct –2.1 Q3 –2.8 189 189 –4.3 6.18 8.01
Norway +51.2 Nov +58.4 Q3 +15.3 5.78 7.00 9.9 2.04 4.12
Poland –8.3 Oct –7.7 Oct –0.8 2.87 2.95 –2.3 4.26 6.24
Russia +100.9 Oct +40.8 Q3 +2.2 30.1 29.3 –8.0 8.75 8.11
Sweden +12.6 Oct +33.0 Q3 +7.2 7.17 7.74 –3.8 0.16 3.38
Switzerland +17.9 Nov +26.1 Q2 +7.7 1.03 1.05 –1.3 0.25 1.85
Turkey –36.0 Oct –11.4 Oct –2.0 1.51 1.52 –6.3 7.12 5.15 ‡
Australia –3.0 Oct –32.7 Q3 –3.6 1.11 1.45 –3.6 4.26 5.83
Hong Kong –26.1 Nov +26.2 Q3 +13.3 7.76 7.75 –1.9 0.14 2.46
India –77.0 Oct –26.6 Q2 –0.3 46.7 48.5 –8.0 3.75 7.71
Indonesia +16.6 Oct +6.9 Q3 +1.2 9,435 10,950 –2.6 7.06 5.60 ‡
Malaysia +33.9 Oct +36.7 Q2 +13.6 3.43 3.48 –7.9 2.17 1.57 ‡
Pakistan –13.6 Nov –5.5 Q3 –1.5 84.2 79.2 –4.3 12.34 11.10 ‡
Singapore +22.4 Nov +20.9 Q3 +16.0 1.40 1.44 –3.2 0.50 2.63
South Korea +38.4 Nov +41.9 Nov +3.8 1,171 1,260 –4.5 2.85 5.31
Taiwan +20.4 Nov +38.6 Q3 +9.6 32.3 32.8 –5.0 0.86 1.24
Thailand +20.1 Nov +17.7 Oct +5.8 33.4 34.8 –5.7 1.35 3.46
Argentina +16.4 Nov +8.5 Q3 +4.8 3.82 3.45 –1.0 11.94 na
Brazil +25.5 Nov –21.2 Nov –0.8 1.74 2.33 –3.2 8.65 6.16 ‡
Chile +11.5 Nov +0.8 Q3 –0.3 506 641 –4.2 0.72 1.67 ‡
Colombia +0.5 Oct –6.0 Q2 –3.1 2,049 2,241 –3.0 4.11 5.22 ‡
Mexico –6.5 Nov –11.2 Q3 –1.1 13.0 13.8 –4.0 4.50 7.80
Venezuela +6.7 Q3 –2.1 Q3 +0.7 5.90 § 5.20 § –7.6 14.60 6.55 ‡
Egypt –25.2 Q2 –4.4 Q2 –1.7 5.49 5.52 –6.9 9.84 1.77 ‡
Israel –5.4 Nov +5.2 Q3 +2.9 3.79 3.76 –5.4 1.17 4.15
Saudi Arabia +212.0 2008 +134.0 2008 +1.4 3.75 3.75 –0.9 0.77 na
South Africa –2.8 Oct –12.0 Q3 –5.4 7.40 9.36 –5.0 7.23 9.05
*Merchandise trade only. † The Economist poll or Economist Intelligence Unit forecast. ‡ Dollar-denominated bonds. § Unofficial exchange rate.
Mergers and acquisitions
Goldman Sachs advised on 233 mergers
and acquisitions in 2009, more than any
other rm, according to league tables
compiled by mergermarket, a research
group. But Morgan Stanley was the
leading M&A adviser when measured by the
value of transactions: it was involved in
deals worth a total of $574 billion. The
remaining places in the top ve (ranked by
the value of deals) were also taken by big
American banks. The next four spots went
to their main European rivalsincluding
Barclays Capital, a bank with rather less
M&A pedigree than the Swiss banks, UBS
and Credit Suisse, ranked just above it.
Lazard made the top ten ahead of two
other independent advisory rms,
Evercore Partners and Rothschild.
Top advisers, 2009*, value of deals, $bn
Morgan Stanley
Goldman Sachs
JPMorgan
Citigroup
Bank of America
Merrill Lynch
Credit Suisse
UBS
Barclays Capital
Deutsche Bank
Lazard
Evercore Partners
Rothschild
0 150 300 450 600
Number of deals
221
233
218
167
161
191
184
Source: mergermarket *Up to December 21st
68
137
150
24
162
Markets
Markets
Index
Dec 29th
% change on
Dec 31st 2008
one in local in $
week currency terms
United States (DJIA) 10,545.4 +0.8 +20.2 +20.2
United States (S&P 500) 1,126.2 +0.7 +24.7 +24.7
United States (NAScomp) 2,288.4 +1.6 +45.1 +45.1
Japan (Nikkei 225) 10,638.1 +2.5 +20.1 +21.5
Japan (Topix) 915.9 +1.4 +6.6 +7.9
China (SSEA) 3,368.7 +5.3 +76.2 +76.1
China (SSEB, $ terms) 250.5 +5.3 +126.0 +125.8
Britain (FTSE 100) 5,437.6 +2.0 +22.6 +39.9
Canada (S&P TSX) 11,701.8 +0.6 +30.2 +51.8
Euro area (FTSE Euro 100) 922.0 +1.4 +23.5 +29.6
Euro area (DJ STOXX 50) 2,992.1 +1.6 +22.2 +28.2
Austria (ATX) 2,502.9 +1.5 +43.0 +49.9
Belgium (Bel 20) 2,525.9 +1.5 +32.3 +38.8
France (CAC 40) 3,960.0 +1.6 +23.1 +29.1
Germany (DAX)* 6,011.6 +1.1 +25.0 +31.1
Greece (Athex Comp) 2,196.0 –0.8 +22.9 +28.9
Italy (FTSE/MIB) 23,376.2 +1.7 +20.1 +26.0
Netherlands (AEX) 337.3 +1.4 +37.1 +43.8
Spain (Madrid SE) 1,251.6 +1.1 +28.2 +34.5
Czech Republic (PX) 1,125.7 +1.3 +31.2 +40.7
Denmark (OMXCB) 315.3 +0.6 +39.4 +46.2
Hungary (BUX) 21,570.3 +4.0 +76.2 +77.7
Norway (OSEAX) 423.7 +1.6 +56.8 +91.3
Poland (WIG) 40,281.2 +1.2 +47.9 +53.2
Russia (RTS, $ terms) 1,445.2 +2.0 +126.4 +128.7
Sweden (OMXS30) 965.8 +0.4 +45.8 +61.1
Switzerland (SMI) 6,608.5 +0.4 +19.4 +22.7
Turkey (ISE) 51,786.0 +0.5 +92.8 +97.7
Australia (All Ord.) 4,856.7 +2.8 +32.7 +69.5
Hong Kong (Hang Seng) 21,499.4 +1.9 +49.4 +49.4
India (BSE) 17,401.6 +4.3 +80.4 +88.3
Indonesia (JSX) 2,519.0 +2.1 +85.8 +114.0
Malaysia (KLSE) 1,275.2 +1.2 +45.4 +47.0
Pakistan (KSE) 9,410.7 +0.8 +60.5 +50.5
Singapore (STI) 2,869.8 +1.6 +62.9 +68.3
South Korea (KOSPI) 1,672.5 +1.0 +48.7 +60.8
Taiwan (TWI) 8,053.8 +2.5 +75.4 +78.2
Thailand (SET) 742.2 +2.5 +64.9 +72.8
Argentina (MERV) 2,318.4 +3.4 +114.7 +94.5
Brazil (BVSP) 68,296.0 +1.3 +81.9 +142.6
Chile (IGPA) 16,547.1 +1.3 +46.1 +86.9
Colombia (IGBC) 11,568.9 nil +53.0 +71.7
Mexico (IPC) 32,626.3 +1.2 +45.8 +59.1
Venezuela (IBC) 55,080.7 +0.1 +57.0 +69.0
Egypt (Case 30) 6,257.9 –2.9 +36.1 +36.5
Israel (TA-100) 1,060.1 +1.0 +87.9 +88.2
Saudi Arabia (Tadawul) 6,121.8 –1.7 +27.5 +27.6
South Africa (JSE AS) 27,655.2 +0.1 +28.6 +61.1
Europe (FTSEurofirst 300) 1,046.9 +1.2 +25.8 +32.0
World, dev’d (MSCI) 1,178.0 +1.6 +28.0 +28.0
Emerging markets (MSCI) 980.6 +2.8 +72.9 +72.9
World, all (MSCI) 301.2 +1.8 +32.3 +32.3
World bonds (Citigroup) 834.7 +0.2 +3.1 +3.1
EMBI+ (JPMorgan) 492.4 +0.1 +25.8 +25.8
Hedge funds (HFRX) † 1,155.3 +0.5 +13.2 +13.2
Volatility, US (VIX) 20.0 19.5 40.0 (levels)
CDSs, Eur (iTRAXX) ‡ 72.0 –2.3 –64.4 –62.6
CDSs, N Am (CDX) ‡ 117.8 –1.4 –49.5 –49.5
Carbon trading (EU ETS) ¤ 12.6 –0.5 –24.2 –20.5
*Total return index. † Dec 28th. ‡ Credit-default-swap spreads, basis
points. Sources: National statistics offices, central banks and stock
exchanges; Thomson Reuters; WM/Reuters; JPMorgan Chase; Bank Leumi
le-Israel; CBOE; CMIE; Danske Bank; EEX; HKMA; Markit; Standard Bank
Group; UBS; Westpac
Indicators for more countries, as well as
additional series, can be found at
Economist.com/indicators

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