The Economist: Full print edition

The economy and employment: On the turn?

Thu, 09 Jul 2009 11:07:55 GMT

The gloom about jobs is overdone, but the outlook remains tenuous

AFTER ebbing steadily since the start of the year America’s monthly job losses figure abruptly jumped from 322,000 in May to 467,000 in June, deflating talk of an imminent exit from recession. Hand-wringing in Washington quickly followed. On July 5th the vice-president, Joe Biden, admitted that the White House had “misread how bad the economy was”. In January it had predicted that unemployment would peak at 9% without a fiscal stimulus and 8% with one. The $787 billion two-year stimulus is now law but unemployment stands at 9.5% and Barack Obama admits it will probably top 10%.

At one level, the hand-wringing is overdone. The economy is doing a bit better than June’s employment report suggests. Jim O’Sullivan of UBS argues that the early date on which the job-market survey was done, combined with fewer than usual summer jobs for students, exaggerated the weakness. He notes that stockmarkets, home sales and consumer confidence are all showing the gradual improvement typical of turning-points. The deep freeze in the financial markets is thawing: issuance of stocks and corporate bonds hit $338 billion in the second quarter, according to Thomson Reuters, the highest for a year. ...

Lone Star rising

Thu, 09 Jul 2009 11:07:55 GMT

Thanks to low taxes and light regulation, Texas is booming. But demography will bring profound changes, says Christopher Lockwood (interviewed here)

VISITORS to Governor Rick Perry’s vast office in the Texas capitol building in Austin (with a dome a mite taller, naturally, than the one in Washington, DC) are sometimes offered a viewing of a triumphalist video. Entitled “The Texaplex”, the seven-minute film is a hymn to the successes Texas has achieved in recent years, and they look pretty impressive.

Texas now hosts more Fortune 500 companies than any other American state. They include AT&T, Dell and Texas Instruments; oil giants such as Exxon Mobil, ConocoPhillips and Valero; American, Continental and Southwest Airlines; Fluor, a huge construction firm (recently lured from California); J.C. Penney; Halliburton; and 52 others. Texas claims to have been responsible for 70% of all the net new jobs created last year in America’s 50 states, though since only a few states created any jobs at all that is not quite as astonishing as it sounds. ...

Tex-mix

Thu, 09 Jul 2009 11:07:55 GMT

The state’s best and worst sides

THOUGH the Texas model has many critics, its admirers tend to list the same advantages. The low tax burden (second-lowest in America) invariably comes top of the list. Arthur Laffer, inventor of the famous curve, reckons that one of the most important determinants of whether a state does well or badly is not just the overall level of taxes but their structure too. A high, progressive personal income tax, he says, is about the worst incentive-killer you could devise. Americans are highly mobile, so the most able will simply leave for another state. Mr Laffer himself left California for low-tax Tennessee three years ago because he felt that bad taxes were destroying the state’s economy.

Progressive taxes are considered fairer, but better to leave it to the federal authorities to impose a progressive income tax, the same for every state. The nine states with a personal-income-tax rate of zero, Mr Laffer finds, had net domestic immigration of 4.5% of their population in the ten years to 2007; the nine with the highest marginal tax rates saw outflows averaging 2.2%. A high state tax on capital gains is also bad because it tends to be volatile, causing big budgetary problems. Texas does not have one of those either. ...

The new face of America

Thu, 09 Jul 2009 11:07:55 GMT

Texas is the bellwether for demographic change across the country

AT THE age of 34, Julian Castro has pulled off a remarkable feat. On May 9th, without even the need for a run-off, the polished young lawyer won the race to become mayor of San Antonio, the largest Hispanic-majority city in America and the seventh-biggest city in the entire country. He joins Antonio Villaraigosa, the mayor of Los Angeles, as one of America’s half-dozen most prominent Hispanics.

The curious thing is that Mr Castro is only the third Hispanic mayor in San Antonio’s long history; the first, Henry Cisneros, was elected only in 1981. America’s Hispanics have a long way to go before they enjoy the influence that their numbers suggest. “We do have a history of failing to participate,” he admits. “But we have been seeing a series of big advances.” ...

The red and the blue

Thu, 09 Jul 2009 11:07:55 GMT

Whisper it softly, but Texas looks set to become a Democratic state

THE elected sheriff of Dallas County is a lesbian Latina. The leading candidates to become mayor of Houston in November include a black man and a gay white woman. The speaker of the House of Representatives is the first Jew to hold the job in 164 years of statehood and only the second speaker to be elected from an urban district in modern times. In this year’s legislative session, bills to compel women to undergo an ultrasound examination before having an abortion (to bring home to them what they are about to do) and to allow the carrying of guns on campus both fell by the wayside; a bill to increase compensation for people wrongly convicted sailed through. Lakewood, in Houston, the biggest church not just in Texas but in America, claims to welcome gays. As Dorothy in “The Wizard of Oz” might have said, we’re not in Texas any more.

Or at least, not in Texas as we have recently come to know it. A Democratic-voting Texas would be nothing new, but political memories are short, and the blunders of the Bush presidency have coloured global perceptions of what Texas is like. It mostly voted Democratic in presidential elections until 1968, when, alone among the former Confederate states, it went for Hubert Humphrey, and 1976, when it voted for Jimmy Carter. Many of those voters were highly conservative “Dixiecrats” and later flipped to the Republicans. But there has always been a strong radical streak too. William Jennings Bryan was hugely popular in Texas. Jim Hightower, a former Texas agriculture commissioner and the perennial voice of Texas populism, says that “Texas has always been a purple state”—up for grabs by either the red Republicans or the blue Democrats. ...

Sources and acknowledgments

Thu, 09 Jul 2009 11:07:55 GMT

Besides those mentioned in the text, the author would like to thank the following: Angelos Angelou and Carrie Yeats, Angelou Economics; Dan Bellow, Jones Lang LaSalle; Michael Brandl, McCombs School of Business; Terry Britton, Port San Antonio; Robert Cavnar, Milagro Exploration; Susan Combs, Comptroller of Texas; Deirdre Delisi, Texas Transportation Commission; Jim Edmonds, Port of Houston Authority; Marc Farmer, Lubbock EDA; Steven Farris, Apache; Tony Garza, former US ambassador to Mexico; Tori Gaddis, Houston Strategies; Patrick Neal Jankowski, Opportunity Houston; Dana Johnson, Comerica; Elena Marks, Mayor of Houston’s O.ce; Bill Miller, Hillco Partners; Tom Pauken, Texas Workforce Commission; Gregory Rodriguez, New America Foundation; Nestor Rodriguez, UT Austin; Brooke Rollins, Texas Public Policy Foundation; Mimi Schwarz, Texas Monthly; Shearwater; Russel Smith, Texas Renewable Energy Industries Association; William Sproull, Richardson Chamber of Commerce; Randall Terrell, Equality Texas; Dan Wolterman, Memorial Herman; Nelson Wolff, Bexar County Judge; Greg Wortham, mayor of Sweetwater; Antonio Zavaleta, UT Brownsville.

Sources: ...

Work hard. Be nice

Thu, 09 Jul 2009 11:07:55 GMT

A new breed of school for some of the poorest kids

A CHEERY yellow building in south-west Houston may not look like the centre of an educational revolution, but appearances can be deceptive. Bedecked with upbeat slogans—“People make the difference”, “Think like a champion today”, “Be the constant, not the variable”—the building houses the main offices and assembly area of the KIPP Academy, Houston, the first of a network of 66 schools in 19 states and Washington, DC.

KIPP (Knowledge Is Power Programme) started in 1994 with a simple philosophy, encapsulated in its main motto, “Work hard. Be nice.” It stresses personal responsibility and hard work (even the youngest students can expect a couple of hours of homework a night, and teachers must be available on their mobile phones to help with it) and tells its pupils that “there are no short cuts.” ...

Beyond oil

Thu, 09 Jul 2009 11:07:55 GMT

The Texan economy is becoming ever more diversified, but energy remains a favourite

HIGHWAY 84, as it descends from Lubbock through Snyder to the small town of Sweetwater, is a road worth taking. Spread across the vast plain are thousands of windmills, gently turning in a favourable wind; not too slow, not too fast and, above all, fairly consistent.

Only as you draw near to one do you realise that these towers are the height of 40-storey buildings; their blades are the length of a jumbo jet’s wing. They are clever too. Without human intervention, they can turn their heads and alter the pitch of their blades to make the most of the wind. They cost about $5m apiece. ...

Public-sector pensions: Unsatisfactory state

Thu, 09 Jul 2009 11:07:55 GMT

As workers in the private sector are losing their final-salary pensions, public employees are being shielded from the true cost of provision for old age

PENSIONS are expensive to provide. People are living longer, investment returns over the past decade have been dismal and interest rates are low. All this makes a given annual payment costlier to fund. In the private sector, employers are balking at the cost of defined benefit (DB) schemes, in which pensioners are paid a proportion of their final salaries. Many have been shut to new members or discontinued altogether. In Britain, closed DB schemes outnumber open ones by almost three to one.

In the public sector, however, final-salary schemes live on. In part this may be because of a conscious decision to reward workers in vital services such as the armed forces and the police. However, it may also be because the true cost of those pension promises is not being properly allowed for. “Governments are not accounting for what they have promised in the past and are understating what workers are being promised for the future,” says John Prior of Punter Southall, a firm of actuaries. ...

Output, prices and jobs

Thu, 09 Jul 2009 11:07:55 GMT

Trade, exchange rates, budget balances and interest rates

Thu, 09 Jul 2009 11:07:55 GMT

Markets

Thu, 09 Jul 2009 11:07:55 GMT

Insurance

Thu, 09 Jul 2009 11:07:55 GMT

The world’s big insurance markets collected $4.3 trillion in premiums in 2008, according to Swiss Re, a global reinsurance firm. After adjusting for inflation, total premiums in life and non-life insurance markets fell by 2% last year, the largest decline since 1980. Although emerging-market premiums grew by more than 11%, they still only made up 12% of the total. Life insurance, which has been hardest hit by the financial crisis, still provides about 60% of total premiums. It has also grown more than twice as fast as non-life insurance in emerging markets, although Russia, where the market shrank 28%, is a notable exception. Britons bought the most insurance per person in 2008.

...

The Economist commodity-price index

Thu, 09 Jul 2009 11:07:55 GMT

The Economist poll of forecasters, July averages

Thu, 09 Jul 2009 11:07:55 GMT

Overview

Thu, 09 Jul 2009 11:07:55 GMT

The IMF released fresh growth forecasts on July 8th. It now expects America’s economy to shrink by 2.6% this year, an improvement of 0.2 percentage points over its previous estimate, released in April. However, it reckons that the recession in the euro area will be even deeper than it had earlier predicted: GDP in the countries that use the euro is now forecast to shrink by 4.8% this year, a downward revision of 0.6 percentage points. This, together with greater pessimism about Latin America and eastern Europe, has led it to revise its prediction for global GDP growth down by 0.1 percentage points, to -1.4%.

Industrial production in Germany increased by 3.7% in May, after falling by 2.6% the previous month. May’s rise was the biggest monthly increase since 1993, raising hopes that the German economy, which shrank by 6.9% in the year to the first quarter, was on the mend. ...

KAL's cartoon

Thu, 09 Jul 2009 11:07:55 GMT

Politics this week

Thu, 09 Jul 2009 11:07:55 GMT

China deployed thousands of troops to regain control of Urumqi, the capital of the western region of Xinjiang, after three days of rioting between Muslim Uighurs and Han Chinese. At least 156 people were killed and more than 900 injured in the violence, the worst outbreak of civil disorder in China since the suppression of the Tiananmen demonstration in 1989. The government said most of the dead were Han Chinese; the Uighurs claimed most of the victims as their own. See article

A gaunt Kim Jong Il made a rare public appearance on the 15th anniversary of the death of Kim Il Sung, his father. The North Korean dictator is said to be preparing his youngest son to succeed him. Meanwhile, North Korea was accused of being behind a cyber-attack that shut the websites of government departments in the United States and South Korea. ...

Business this week

Thu, 09 Jul 2009 11:07:55 GMT

Alistair Darling, Britain’s chancellor, outlined proposals that would force banks to increase their capital to guard against future crises and give more enforcement powers to the Financial Services Authority, the City regulator. Banks that would pose a significant risk to the financial system if they collapsed would be subject to stringent capital and liquidity standards. His plans were criticised by the opposition Conservative Party, which said that, if elected, it would beef up the Bank of England’s role instead. See article

Mr Darling’s announcement came shortly after a meeting of European finance ministers, at which Germany asked for a temporary relaxation of Basel 2 rules on capital requirements in order to stimulate lending. Its request was denied. ...

The bankruptcy of Christian Lacroix: End of season

Thu, 09 Jul 2009 11:07:55 GMT

Lessons for the luxury industry from the demise of a famous brand

IN THE end a shortage of cash brought out the best in Christian Lacroix, a fashion designer whose couture house filed for bankruptcy in May. Unable to spend freely on what was probably his final show on July 7th, he presented restrained, wearable clothes in just a handful of colours—a far cry from his usual baroque fantasies.

Mr Lacroix’s fashion house had lost money every year since it was founded in 1987 inside LVMH, a luxury-goods group. LVMH’s plan was to create a fashion house which would sell products from haute couture to handbags and perfume. But Lacroix never had a hit perfume or an “it” bag. In 2005 LVMH sold the firm for a nominal sum to the Falic Group, owner of Duty Free Americas, a retail chain. ...

Signs of hope for the car industry: Living on scraps

Thu, 09 Jul 2009 11:07:55 GMT

The worst may be over for carmakers, but they are still in for a long haul

CALL them green fumes. Sales of cars and trucks in America showed their smallest year-on-year decline last month since September, when Lehman Brothers crashed—although the drop was still a massive 31%. That would correspond to annual sales of 9.7m. But according to General Motors, the first three weeks of the month were a good deal better, running at a rate of 10.3m. Sales subsequently slowed as some customers held back in anticipation of the federal “cash-for-clunkers” scheme, which began this month.

Such incentives appear to be working well. Data released this week by J.D. Power Automotive Forecasting showed that during June, car sales in Western Europe grew by 4.1%. In Germany, which has the most generous of the many scrappage schemes in operation, sales were up by an astounding 40.5% for the month and 26% for the year so far. Monthly sales rose by nearly 12% in Italy and by 7% in France. ...

Face value: Upwardly mobile

Thu, 09 Jul 2009 11:07:55 GMT

Peter Chou wants to turn HTC, which used to make mobile phones for other firms, into a brand in its own right

THE pockets of Peter Chou, the chief executive of HTC, a Taiwanese handset-maker, are bulging. He likes to carry his firm’s forthcoming gadgets around with him. At HTC’s headquarters near Taipei, he recently dug out no fewer than six handsets. But if HTC fulfils its ambitions, Mr Chou will need to start wearing cargo pants. The firm has long toiled in obscurity as an “original design manufacturer”, or ODM, quietly developing and building high-end “smart” phones for leading Western mobile operators, including Verizon and Orange. Now he wants his firm to become a household name alongside Apple and Nokia. HTC is releasing a new phone, the Hero, in Europe later this month (consumers in Asia will have to wait until later in the summer, and in America until autumn), which it hopes will be a step in this direction. If its transformation succeeds, the firm will become a model for other Asian technology companies.

Mr Chou can sound more like a Californian management guru than an Asian corporate patriarch. He says of his employees, “Instead of telling them what to do, I want people to have the freedom to explore their talent.” That, after all, is what he had. In high school he was already passionate about all things electric. At university he decided to focus on computers. In 1972 he joined Digital Equipment Corporation (DEC), a leading American computer-maker which had set up shop in Taiwan. “That’s where I learned the deep-engineering process: turning a concept into a mature product,” he says. ...

The agritainment business: Hedge-fun managers

Thu, 09 Jul 2009 11:07:55 GMT

From mazes to weddings, farmers are making more money out of the public

NOT with a bang, but a moo, the last ever Royal Show closed on July 10th, ending a 170-year run. The agricultural jamboree, intended to spread innovation among farmers, could no longer meet its GBP300,000 ($480,000) costs. “Having 3,000 livestock for three nights’ bed and breakfast is expensive,” says Denis Chamberlain, the show’s marketing chief. Attendance has halved since the 1980s, mainly because the industry has consolidated into a small number of mega-farms rather than lots of minnows, he reports. It is a shame for non-professional visitors, whose attendance had held up relatively well.

The public now plays a big part in keeping farmers afloat. In Earlswood, down the road from the Royal Show in a quiet nook of Warwickshire, labourers are plucking avenues in a field to make a seven-acre “maize maze”, which all comers will be able to explore for GBP5 from July 18th, when the crop is high enough. The cost of designing the labyrinth, with the help of a GPS receiver and eight miles of string, will be outweighed by 15,000 or so visitors over the summer, hopes Steve Williams, the farm manager. And in October 80% of the crop will still be good to sell as cattle-feed. (This is a bonus in more ways than one: as long as the crop is sold, the maze doesn’t need planning permission.) The only threats are rain—and rabbits. “They like to have a chobble at it, but there should be enough left,” says Pete Smith, a maize-plucker. ...

Outsourcing torture: Extraction

Thu, 09 Jul 2009 11:07:55 GMT

Did the government subcontract the removal of a man’s fingernails?

LIKE confessions teased out of a reluctant suspect, scraps of information about Britain’s relationship with foreign torturers are gradually coming to light. The latest disclosures were made in the House of Commons on July 7th. David Davis, who resigned as shadow home secretary last year to become a one-man wrecking ball for the cause of civil liberty, accused the government of “outsourcing” the torture of Rangzieb Ahmed, a British citizen held in Pakistan for 13 months between 2006 and 2007.

Mr Ahmed is a self-confessed terrorist, supposedly once al-Qaeda’s top man in Britain, who was given a life sentence by a British court last year for “directing terrorism”. He says that during his time as a guest of Pakistan’s security services he was beaten with staves and rubber tubing and had three fingernails prised off with pliers. During his stay he was asked questions which, the police accept, were drawn up with the help of mi5 and the Greater Manchester Police. ...

Britain-baiting in Iran: My Uncle Albion

Thu, 09 Jul 2009 11:07:55 GMT

The current ill will between the two countries has deep roots

AS IRAN’S government moves to stifle criticism of its disputed elections, it is trying to pin the blame for the subsequent unrest on outsiders. To the bemusement of some in Britain—increasingly inclined to see itself as a third-rank power—the ayatollahs have fixed on perfidious Albion in particular. Relations between the two countries, often uneasy, have deteriorated. Britain responded to Iran’s expulsion of two British diplomats by sending two of Iran’s packing. Nine Iranian employees at the British embassy in Tehran were then arrested, on charges of inciting protests.

Eight have now been released but the ninth, the embassy’s chief political analyst, is still being held, accused of undermining national security. The British government says the charges are baseless and the arrests unacceptable, but Iranian officials insist he must stand trial. Britain’s Foreign Office, while treading carefully, is rallying its allies. At a press conference with Gordon Brown on July 6th Nicolas Sarkozy, France’s president, assured the prime minister of his country’s full support. The European Union condemned the arrests, and there were rumours this week that EU diplomats might be withdrawn. ...

Regulating banks: The devil's punchbowl

Thu, 09 Jul 2009 11:07:55 GMT

You thought that the party was over. Think again

A NEW hiring frenzy in the City, with bonuses guaranteed for “only” the first year; investment-banking results for the second quarter likely to top those of the first; an innovative securitisation by Barclays to get bank loans off its balance sheet. The term “business as usual” normally delights tradesmen and their customers. Applied to the banks that plunged Britain into economic crisis, it strikes fear to the heart.

Promised reforms to bank regulation, meant to curb the excess before it starts all over again, are in limbo. On July 8th Alistair Darling, the chancellor of the exchequer, unveiled plans to make banks hold progressively more capital, the bigger and more complex they are. Banks will be required, in effect, to add capital if they pose special risks to the system, including higher capital charges if they pay bonuses that encourage short-term risk-taking. ...

The end of MG Rover: A death revisited

Thu, 09 Jul 2009 11:07:55 GMT

Was the carmaker the victim of a crime?

A LITTLE over four years after it collapsed controversially into the arms of the receiver, MG Rover, Britain’s last indigenous volume carmaker, is in the news again. This week Lord Mandelson, the business secretary, announced that he had passed a long-awaited inspectors’ report on the company’s demise to the Serious Fraud Office. Lord Mandelson said that before the report could be published, the SFO had to determine whether there were grounds for a criminal prosecution against the so-called Phoenix Four, a group of four businessmen led by a former Rover chief executive, John Tower, who had bought the ailing firm from BMW in 2000 for GBP10.

Immediately, the opposition Conservatives and business journalists who had covered the affair smelt a rat. Among the questions asked were why the authors of the report, a forensic accountant and a senior barrister, had taken four years to complete it (at a cost to taxpayers of GBP16m) and why, if a crime was suspected, the SFO had not been called in much sooner. The widespread assumption was that Lord Mandelson was kicking the report into the “long grass” to avoid embarrassing disclosures in the run-up to a general election about the government’s own role in Rover’s failure. Denying any such intention, Lord Mandelson said that the SFO would complete its work within 20 days and he hoped publication would be possible “before too long”. But if the SFO decides that there are possible grounds for prosecution, the expensively compiled report could remain out of bounds for some time. ...

Unemployment in Spain: Two-tier flexibility

Thu, 09 Jul 2009 11:07:55 GMT

How the burden of adjustment in Spain falls on the underprivileged

LIFE is looking up for metalworkers in Cuenca, east of Madrid. They have won a pay rise of 3% in real terms. In a country with falling GDP and unemployment of 18%, that is no small feat. Yet it is not unusual. Spain’s centralised wage-bargaining system awarded real pay rises of 3.5% in May, the highest in a dozen years. Spaniards in work might be forgiven for concluding that recession is beneficial.

The fate of Spanish workers is a story of contrasts. Some have never had it so good; others have never had it so bad. Spain has the European Union’s highest unemployment and one of its less generous welfare systems. It has shed 1.2m jobs in a year. It will soon have as many jobless as Italy and France combined. Pay rises for some have led employers to cut the jobs of others. Two-thirds of workers have armour-clad permanent contracts. But the rest are on short-term deals. They are the people now on the dole. ...

A cyber-warfare mystery: Ghost in the machine

Thu, 09 Jul 2009 11:07:55 GMT

When is a cyber-attack a real one?

AMERICA and other countries still have to fine-tune their cyber-defences to distinguish mere nuisances from real menaces. That, rather than any revelations about fiendish North Korean cyber-warfare, seems to be the upshot of the latest reported cyber-attack on South Korean and American websites.

Initially, it was reported that this was the first series of attacks to hit government websites in several countries simultaneously. Officials in both Seoul and Washington, DC, said they were suffering “distributed denial of service” overload (known as DDOS in geekspeak). In these a computer is overwhelmed with bogus requests for a response sent from infected computers. American targets included sites at the Treasury, the Secret Service, and the Transportation Department; the South Korean list included the Defence Ministry, the National Assembly, the presidential Blue House and some banks. The timing felt eerie: attacks began on July 4th, Independence Day. ...

Climate change talks: Wanted: fresh air

Thu, 09 Jul 2009 11:07:55 GMT

Poor countries wrangle with rich ones about who can burn what and when

WHEN argument fails, try metaphor. Shyam Saran, who heads India’s international negotiating team on climate change, says that greenhouse gases are taking up “carbon space” in the atmosphere. Past emissions of carbon dioxide and other gases from rich countries have taken up much of that space. Now the poor countries are standing up for their right to a little bit of that space too.

Put in those terms, it seems a matter of plain justice. Mr Saran is merely defending India’s right to industrialise. But as a negotiating position, it is one of the reasons why the talks on climate change at the G8 meeting in Italy this week have proved so fractious. Mr Saran says that the only limit India will accept on greenhouse-gas emissions is the same per-person amount enjoyed by citizens of developed countries. From the planet’s point of view that would mean a huge, and possibly catastrophic, increase in overall emissions. ...

Faith, economics and ecology: New sins, new virtues

Thu, 09 Jul 2009 11:07:55 GMT

As the world heats up and economic dislocation ravages the poor, religious leaders offer up their diagnoses and prescriptions

GLOBALISATION, technology and growth are in themselves neither positive or negative; they are whatever humanity makes of them. Summed up like that, the central message of a keenly awaited papal pronouncement on the social and economic woes of the world may sound like a statement of the obvious.

But despite some lapses into trendy jargon, Caritas in Veritate (Charity in Truth), a 144-page encyclical issued by Pope Benedict XVI on July 7th, is certainly not a banal or trivial document. It will delight some people, enrage others and occupy a prominent place among religious leaders’ competing attempts to explain and address the problems of an overheated, overcrowded planet. ...

Political confrontation in South Korea: Long, hot summer

Thu, 09 Jul 2009 11:07:55 GMT

South Korea’s opposition is blockading parliament. The tactic may backfire

THE ghost of Roh Moo-hyun is haunting South Korea. The former president committed suicide in May while under investigation for graft. His death has widened the split between the country’s “progressive” forces that he represented and the conservative ones led by President Lee Myung-bak.

Mr Roh’s backers set up a shrine to him across from Seoul’s city hall, a traditional gathering place for protesters. The makeshift altar was promptly surrounded by a ring of police buses and later destroyed by conservative groups. Earlier this year, there was a series of violent clashes between the two sides inside the National Assembly. Parliament’s summer opening was postponed because of Mr Roh’s suicide. Now the former president’s supporters are blockading the halls of parliament 24 hours a day, preventing deputies from getting into the chamber and any laws from being passed (see picture). Progressives are demanding the president apologise for Mr Roh’s suicide, claiming that prosecutors who were investigating him were operating at Mr Lee’s behest—a charge the president furiously denies. ...

Indonesia's president re-elected: No wonder why with SBY

Thu, 09 Jul 2009 11:07:55 GMT

The incumbent wins at a canter

FEW fireworks enlivened the televised debates between the three candidates in Indonesia’s presidential election on July 8th, conducted in a mood of deference and courtesy. But the last debate on July 2nd saw something of a frisson. One of the challengers, Jusuf Kalla, attacked the incumbent, Susilo Bambang Yudhoyono (often called SBY), about a campaign advertisement. It called for the election to be completed in one round to save the 4 trillion rupiah ($400m) cost of the scheduled run-off in September. Mr Kalla complained that this implied that democracy, only 11 years old in Indonesia, had a monetary value.

Mr Kalla may have won the debating point. But he lost the argument. Unofficial “quick-count” projections, which have been accurate in other Indonesian elections, showed Mr Yudhoyono romping home in one round. He seemed likely to win about 60% of the vote, compared with about 13% for Mr Kalla, his vice-president, and 27% for Megawati Sukarnoputri, his predecessor. He also seemed likely easily to pass the other threshold—winning 20% of the popular vote in at least 17 of Indonesia’s 33 provinces. ...

Turkmenistan, gas and stability: Elsewhere in Turkestan

Thu, 09 Jul 2009 11:07:55 GMT

A modicum of normality breaks out

WHEN Gurbanguly Berdymuhammedov succeeded Turkmenistan’s megalomaniac president, Saparmurat Niyazov, in December 2006, there was little immediate sign of change. The former dentist and health minister announced he would follow in the footsteps of the late dictator, who styled himself “Turkmenbashi” or “Father of the Turkmen”.

But more than two years on, much has changed, notably the personality cult surrounding the former president. Many golden statues in the capital, Ashgabat, have been taken down, though plenty remain, including the huge one that rotates so that Turkmenbashi always faces the sun. The late ruler’s North Korean-style political philosophy, the Ruhnama, is no longer taught in schools. ...

India's budget : Hopes suspended

Thu, 09 Jul 2009 11:07:55 GMT

The re-elected government’s first budget falls short of expectations

FROM the ramparts of Bandra fort, built by the Portuguese and now haunted by bashful couples, you can admire Mumbai’s new “sealink”, a suspension bridge linking the city’s suburbs with its downtown neighbourhoods, almost 3 miles (4.7 kilometres) away. Opened on June 30th, after much delay and dispute, this addition to India’s infrastructure should relieve Mumbai’s notorious congestion.

Investors had analogous hopes for India’s budget, unveiled six days later by the finance minister, Pranab Mukherjee. After the Congress party’s decisive re-election in May, investors hoped the budget would start clearing the tailback of delayed reforms the government had been unable to pass in its first term, when it relied on the support of India’s communist parties. ...

After Mexico's mid-term election: Calderón's hatful of troubles

Thu, 09 Jul 2009 11:07:55 GMT

The PRI’s victory means that change in Mexico now depends more on the former ruling party than on the president

“WE WON just about everything,” said Beatriz Paredes, the president of the Institutional Revolutionary Party (PRI), in an accurate summing-up of the mid-term election on July 5th. Not only did the PRI, which ruled Mexico for seven decades until 2000, more than double its seats in the lower house of Congress. It also won five of the six state governorships in play and many important mayoralties. Although it won only 37% of the vote (on a turnout of 45%), the PRI will now take most of the decisions that matter over the next three years.

That is bad news for President Felipe Calderon, whose conservative National Action Party lost badly (see chart). Mr Calderon remains personally popular. He campaigned on his crusade against organised crime. Polls suggest that most Mexicans back this (though less enthusiastically than they did). But they worry more about the slumping economy. And although the president tarred the PRI as corrupt, at least some voters seemed persuaded by the PRI’s slogan of “proven experience, new attitude”. The party, which spans the amorphous centre ground of Mexican politics, may also have been helped by the disarray of the left, which is split between supporters and opponents of Andres Manuel Lopez Obrador, the man defeated by Mr Calderon in 2006. ...

Health-care reform: Pay or play?

Thu, 09 Jul 2009 11:07:55 GMT

Health reform moves forward, in fits and starts

BARACK OBAMA’S plan to overhaul America’s health system before year’s end faces two problems. One is how to pay for his ambitious goal of universal coverage, and the other is whether to include a government-run insurance plan. There was news on both fronts this week.

The biggest hurdle facing reformers in Congress, to whom Mr Obama has delegated the heavy lifting, is cost; the various schemes on offer all cost at least $1 trillion over a decade. The biggest pool of available cash to pay this bill is the $250 billion tax break provided each year for employer-provided health coverage. In recent weeks, a consensus seemed to be emerging on left and right that some sort of cap on this distorting giveaway was necessary. ...

Cyber-bullying and the courts: Megan's law

Thu, 09 Jul 2009 11:07:55 GMT

A sad case in Missouri prompts national concern

MEGAN MEIER was a troubled 13-year-old girl in the small St Louis suburb of Dardenne Prairie. In 2006 one of the few bright spots in her life was her online boyfriend with the soap opera-ish name Josh Evans. She was happy until Josh suddenly turned on her, writing “You are a bad person and everybody hates you…the world would be a better place without you.” Megan hanged herself in her bedroom wardrobe.

Four houses down the street Lori Drew reportedly laughed when she heard of the suicide. She was masquerading online as the teenage boy to see if Megan was saying anything bad about her own daughter Sarah. When exposed by a local newspaper Ms Drew became one of the most hated women in America and the centre of a legal controversy. ...

The crisis in dairy farming: Milking it

Thu, 09 Jul 2009 11:07:55 GMT

Trouble for dairy farmers as global demand shrinks

JOE TIRY milks 55 cows in the gentle hills of Wisconsin. His father was a dairy farmer. So was his grandfather. Mr Tiry’s farm is small, but he has been trying to modernise. He is building a new milking parlour, with two platforms for cows and a sunken one for himself, so that he can be both efficient and comfortable—his knees ache from years spent squeezing a salary from udders. But despite all his efforts, the farm is struggling. Mr Tiry has seen his ups and downs, but never anything like this.

Since January 2008 milk prices have fallen by nearly half, from $20.50 per hundredweight (45kg) to $11.40 this June as global demand has plummeted and milk intended for export has spilled back onto the domestic market. Farmers are suffering the consequences. The United States Department of Agriculture (USDA) is unrolling programmes to help. The two Pennsylvania senators, Arlen Specter and Bob Casey, have proposed a bill to reform milk pricing. On a more grisly note, the National Milk Producers Federation has just completed a cull of 101,040 cows to reduce supply. But no one knows when prices will rebound. When they do, dairy states such as Wisconsin may look rather different. ...

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Thu, 09 Jul 2009 11:07:55 GMT

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Traffic congestion: Stalled

Thu, 09 Jul 2009 11:07:55 GMT

Congestion may be down, but America is stuck

IT SOUNDS like good news. In 2007, for the first time in 16 years, congestion in America’s 439 recognised urban areas actually declined. The finding came in a report published on July 8th by the Texas Transportation Institute, which for years has rung an alarm bell from central Texas in the hope that those in Washington, DC, will hear. Politicians usually shake their heads over the institute’s findings, but do little else. With the publication of this report, it might seem that fuel prices have solved the problem. Unfortunately they have not.

Even though congestion dropped between 2006 and 2007, it still forced urban Americans to travel for 4.2 billion extra hours and buy an extra 2.8 billion gallons of petrol. The cost of all these delays was $87.2 billion, an increase of more than 50% over 1997. The problem affects metropolitan areas of all sizes, but big ones—the country’s economic engines—are in the worst shape. Drivers in Los Angeles suffer the most: in 2007 the average driver spent 70 hours inching along streets and freeways. ...

The riots in Xinjiang: Is China fraying?

Thu, 09 Jul 2009 11:07:54 GMT

Racial killings and heavy-handed policing stir up a repressed and dangerous province

IT BEGAN as a protest about a brawl at the other end of the country; it became China’s bloodiest incident of civil unrest since the massacre that ended the Tiananmen Square protests 20 years ago. The ethnic Uighurs in the far western city of Urumqi, the capital of Xinjiang province, accused Han Chinese factory workers in the southern province of Guangdong of racial violence against Uighur co-workers. By the time Urumqi’s Uighurs had finished venting their anger, more than 150 people were dead and hundreds more injured.

Much is still unknown about what happened on the afternoon of July 5th. A protest by several hundred people in the city’s central plaza, People’s Square, moved southward into Uighur areas, including the Grand Bazaar, a large shopping centre. Somehow—perhaps, overseas Uighur activists say, because the police opened fire—it became an explosion of anger, in which random Chinese were clubbed and stoned to death. ...

Iran's rebellious students: Go underground

Thu, 09 Jul 2009 11:07:54 GMT

On the surface, normality is returning. Underground, things may be different

DESPITE a renewed crackdown by the security forces, Iran’s students are looking for clever new ways to keep their campaign for democracy going. But it is a struggle. Nearly all foreign journalists, bar a handful of agency reporters, are being kept out, so that channel of communication is barred. Websites such as those of the BBC and Facebook are blocked. The text-message system has been stop-go. The authorities have randomly declared public holidays and told people to stay off the streets because of “unhealthy pollution levels”. Security men in plain clothes stop people, especially young ones, at crossroads, to check their bags and identities. Communication between Tehran and other big cities is similarly tricky; there have been reports of dozens of students being arrested at a university in the central city of Isfahan, a former capital of Persia.

The authorities have closed down Tehran’s main university, where the Islamic Revolution began in 1979. Last month it witnessed bloody battles between police and students. Stone-faced security men now stand guard at the front gate, while other entrances have been padlocked. A small number of teachers and students favoured by the authorities are let in. ...

Israel's economy: The government says it's perky

Thu, 09 Jul 2009 11:07:54 GMT

Israel’s economy looks quite resilient

YUVAL STEINITZ, Israel’s finance minister, radiates confidence. Once a popular young left-wing philosopher, he is now a leading light of the right-wing Likud party, the main bit of Binyamin Netanyahu’s coalition, which took office at the end of March. Israel’s economy, he insists, can weather the global turmoil. “Nietzsche taught us, ‘That which does not kill me makes me stronger’”, he muses. “The recession has shown we’re strong. Now we can turn the recovery to our advantage.”

It is the job of a finance minister to talk up his economy. Even so, Mr Steinitz’s optimism seems broadly justified, as he prepares to present a budget for this year and next. Israel’s economy has grown by an average annual rate of 5% in the past five years. Its GDP per head is ahead of Portugal, a shade behind Greece and five times bigger than its neighbour Egypt (see chart). ...

Trouble in the United Arab Emirates: The perils of autocracy

Thu, 09 Jul 2009 11:07:54 GMT

When things go swimmingly, few people seem to mind being run by benevolent autocrats. When things get sticky, they are less obliging

IT WAS once hailed as a miracle. New cities, even new islands, were springing out of the desert or the shimmering turquoise sea. Nowadays, ten months after the financial crisis came crashing in on the United Arab Emirates (UAE), nearly destroying its shiniest component, Dubai, hundreds of cranes and dredgers have yet to resume work. The Queen Elizabeth II, once the world’s smartest liner, due to become yet another posh Dubai hotel, is a sleeping quayside hulk. Nothing is happening on three of the most recently man-made islands shaped like palm trees off Dubai’s coast that were the latest flashy projects of Nakheel, the emirate’s shaky real-estate developer.

These days, despite defiant protestations of resilience, no one seems to know when the sweet breeze will return. The UAE is still in the doldrums. For the first time since the seven Gulf statelets joined together as a union in 1971, people are beginning to mutter—rather quietly, for sure— whether there may be something amiss with the autocratic, opaque system that hitherto seemed to work so well behind closed doors. “Nobody really knows what any of the statistics are,” says a Western analyst. “We haven’t seen the half of it yet,” says a Western banker, referring to the debt and the possible defaults. It is notable that almost nobody in business or government is prepared to talk publicly. Cohorts of public-relations people surround the bigwigs and shield them from scrutiny. ...

The United Arab Emirates and Sudan: An odd deal over land

Thu, 09 Jul 2009 11:07:54 GMT

Are Gulf Arabs taking a chunk of South Sudan for themselves?

THE pristine grasslands of south-eastern Sudan may be the largest trackless swathe of Africa. The annual migration of wild game across the Boma plateau may equal the more famous annual migration through Tanzania’s Serengeti plains. Yet for the next 50 years, under a recent discreet deal, some 16,800 square kilometres (6,180 square miles) of this wilderness will become the estate of a company which—it is presumed—has won approval from the ruling Nahyan family of Abu Dhabi, the richest of the seven statelets that make up the United Arab Emirates (UAE).

The leasing agreement was signed by a company called Al Ain National Wildlife after an earlier failed attempt by another company in the UAE to buy exclusive access to 6,500 square kilometres of the Serengeti plains in northern Tanzania. If well run, large slices of land bought up or leased by rich patrons may help preserve the area for future generations of locals. But some say the deal has been struck without the involvement of ordinary locals and say that aircraft registered in the UAE are already flying equipment to a camp in the Maruwa Hills to start building a resort. ...

Robert McNamara

Thu, 09 Jul 2009 11:07:54 GMT

Robert McNamara, systems analyst and defence secretary, died on July 6th, aged 93

QUANTIFICATION was a word Robert McNamara loved. Numbers could express almost any human activity. Well, perhaps not beauty, honour, love. But certainly the rigours of a youthful trip to sea (19 bed-bug bites on one leg), and the pleasure of climbing Mount Whitney, all 14,495 feet. Five or six bullet points, reinforced when you saw him with vigorous hand-chops, summed up any argument. There were four McNamara steps to changing the thinking of any organisation, including the Pentagon: state an objective, work out how to get there, cost out everything, systematically monitor progress against the plan. There were 11 lessons to be learned from the war in Vietnam, but most of them occurred to him too late.

Things you could count, he said, you ought to count. At the Ford Motor Company, where he was one of the ten “Whiz Kids” brought in in 1946 to shake things up, all the components of each new Chevy (made by GM) would be laid out on a table to inspect. This was not cheating, but competitive evaluation. At the Air Force Office of Statistical Control, where he worked in 1943-45, he counted the firebombing sorties made by the B-29s, at what height, with what percentage hits on target (58% of Yokohama, 51% of Tokyo). System and data together helped win that war. In the Pentagon in 1965, again by applying metrics—targets hit, captives taken, weapons seized, the enemy’s body-count—he could tell with equal certainty that America was losing. ...

Sex ratios and maternal environment: Sons and mothers

Thu, 09 Jul 2009 11:07:54 GMT

Poor circumstances breed daughters

THAT mother knows best is no secret. That her reproductive organs also know best may come as more of a surprise. But that is what two evolutionary biologists, Robert Trivers and Dan Willard, hypothesised nearly four decades ago. Boys, they reasoned, will thrive reproductively when they have grown big and strong in resource-rich environments. Otherwise, they will do badly. Girls, by contrast, will do reasonably well across the board and thus have a comparative advantage over their brothers in poorer situations. Parents, meanwhile, have a genetic incentive to see their progeny do well. Give a mother abundant resources, then, and her body should favour sons. Place her in difficult conditions and she should have more daughters.

The Trivers-Willard theory has been tested with success in several species of wild animal. Showing it to be true in people, however, has proved difficult. But a paper just published in Biology Letters by Thomas Pollet of the University of Groningen, in the Netherlands, and his colleagues makes a brave attempt to do so. Dr Pollet tests it by studying polygamous households. As wives are added to such a household, its resources will necessarily be split more ways. Even if they are shared equally, the first wife will have had a head-start on the others—and, life being what it is, she may retain a dominant position. ...

Extending lifespan: Of mice and monkeys

Thu, 09 Jul 2009 11:07:54 GMT

And men?

MOST people accept that death and taxes are inevitable. But that doesn’t mean you should not try to postpone them. A good accountant can help with the latter, but the usual prescription for the former is a way of life that avoids excess.

That advice might be even truer than many of its proponents realise, for it has long been known that restricting the diets of several species of laboratory animal seems to slow down the process of ageing. This is a question not just of avoiding obesity, but of reducing an individual’s intake of calories to a point significantly below normal consumption—almost, but not quite, to the point of malnutrition. At the same time, some drugs are also known to have anti-ageing properties—again, in “lower” animals. It is therefore good news for potential Methuselahs that both these approaches have now been brought closer, phylogenetically speaking, to humanity. ...

Encouraging competitiveness: Psyched out

Thu, 09 Jul 2009 11:07:54 GMT

The fewer the competitors, the harder they try

WHAT relationship there is between the number of participants in a competition and the motivation of the competitors has long eluded researchers. Does the presence of a lot of rivals stimulate action or lead someone to give up hope? It is more than an academic question. Or, rather, it is a very academic question indeed, for it may affect the way that examinations are conducted if they are to be a fair test for all.

To investigate the matter two behavioural researchers, Stephen Garcia at the University of Michigan and Avishalom Tor at the University of Haifa in Israel, looked at the results of the SAT university entrance examination in America in 2005. This test generates a score supposedly based on the test-taker’s verbal and analytical prowess. ...

Venture capital in America: The brightest and the rest

Thu, 09 Jul 2009 11:07:54 GMT

Too much money has been chasing too few great start-ups

ONE of Silicon Valley’s biggest success stories is doing his bit to lift the gloom hanging over America’s venture-capital (VC) industry. On July 6th Marc Andreessen, who made his name in the 1990s as the co-founder of Netscape Communications, the firm behind one of the earliest web browsers, announced that he and a partner, Ben Horowitz, had raised $300m to back promising start-ups. The fund was heavily oversubscribed and attracted money from several other tech luminaries.

His is not the only glimmer of light. On July 9th the latest results from a “confidence index” compiled by Mark Cannice of the University of San Francisco showed that venture capitalists had become more bullish for the second consecutive quarter. The comatose market for initial public offerings (IPOs), an important exit route for VCs looking to unload companies, is also showing a few signs of life. According to Thomson Reuters and the National Venture Capital Association (NVCA), an industry group, there were five venture-backed IPOs in the second quarter of 2009, worth a total of $721m. ...

Reforming finance: Bank capital: Target practice

Thu, 09 Jul 2009 11:07:54 GMT

How much capital is enough? The second in a series on financial reform

ASKING how tight gun-control laws would need to have been to have prevented any assassinations in Sarajevo in 1914 is not a rewarding exercise. For banks, however, looking at “what if” scenarios is more worthwhile. Most regulators now think that gradually building up capital buffers as the economy recovers is the best way to make banks safer. Britain’s Treasury was the latest to tread this line in a white paper unveiled on July 8th.

For a long time the amount of capital required to withstand a genuine meltdown has been a near-complete unknown. The minimum capital levels set by the Basel 1 accord in the late 1980s in effect endorsed the overall amount of capital in the system at that point. The crisis changes all that. Estimates of ultimate losses remain highly uncertain and the state of the economy is unclear. But regulators now have a real-life example of a systemic collapse with which to calibrate their new rules. ...

Modifying delinquent loans: Mortgage mistakes

Thu, 09 Jul 2009 11:07:54 GMT

America’s foreclosure-prevention strategy may be misconceived

AMERICAN policymakers have long held that mortgage modification is one of the best ways to tackle the country’s housing bust. The logic is alluring. Since foreclosures are costly for lenders as well as painful for borrowers, both sides could be better off by renegotiating a mortgage. The sticking-point, according to conventional wisdom, is securitisation. When mortgages are sliced into numerous pieces it is far harder to get lenders to agree on changing their terms. Hence the need for government action.

It is a compelling argument, but apparently not an accurate one. A new study* by a trio of Federal Reserve economists finds that very few delinquent mortgages are modified overall, and that securitised loans are as likely to be renegotiated as those on lenders’ books. ...

Buttonwood: Testing the model

Thu, 09 Jul 2009 11:07:54 GMT

Private equity faces a more hostile world

THE private-equity industry faces a critical test. It prospered in an era when asset markets were generally rising, debt was plentiful and cheap, and recessions were rare and relatively mild.

Now private-equity firms have to manage their portfolios through a recession. They cannot buy companies, strip out costs and “flip” them back to the market or to a trade buyer; there are too few purchasers around. They cannot use as much debt to finance their deals because banks and institutional investors are less willing to finance them. The regulatory climate has also changed. European politicians have seized the chance provided by the financial crisis to propose new rules for the industry, despite the lack of evidence that it had much to do with the credit crunch. ...

China and the dollar: Yuan small step

Thu, 09 Jul 2009 11:07:54 GMT

The dollar’s role as the world’s main reserve currency is being challenged

THE Chinese used to call dollars mei jin, which means “American gold”. Buying black-market dollars was considered the safest way to protect one’s savings. Yet in June when Tim Geithner, America’s treasury secretary, told students at Peking University that China’s official holdings of Treasury bonds were safe, the audience laughed. Faith in the greenback is waning.

In the build-up to the annual summit of G8 countries, which began on July 8th in the Italian city of L’Aquila, officials in China, Russia and India all called for an end to the dollar’s dominance in the international monetary system. Dmitry Medvedev, Russia’s president, declared on July 5th that the dollar system is “flawed”; his central bank has been reducing its dollar holdings. The People’s Bank of China (PBOC), China’s central bank, repeated its call for a new global reserve currency in June and is now taking the first steps towards turning the yuan into a global currency. ...

Trade compression : Number crunch

Thu, 09 Jul 2009 11:07:54 GMT

The CDS market has shrunk dramatically. Why?

EVEN in a crisis full of big numbers, the size of the credit-default-swap (CDS) market, which stood at a monumental $57 trillion dollars in June 2008, has grabbed attention. That number has since shrunk dramatically. According to the Bank for International Settlements, the value of outstanding CDS contracts had fallen to $42 trillion in December.

The apparent collapse is largely down to something called trade compression. Since August, credit-derivative dealers have been routinely giving details of their CDS trades to compression vendors. These companies propose new sets of CDS contracts that keep each of the participating dealers’ net positions the same, but aggregate them into far fewer contracts. Unlike netting, which only hides contracts, trade compression excises them completely, cutting down the possibility of legal wrangling and reducing counterparty risk. ...

Nomura's integration of Lehman: To “L” and back

Thu, 09 Jul 2009 11:07:54 GMT

Nomura beds down its high-profile acquisition. Now for the hard part

LAST year, shortly after Nomura had taken over Lehman Brothers in Europe and Asia, staff of the Japanese investment bank wandered through the trading floors of its new acquisition in London stripping the Lehman name from walls and desks. There was not much they could do about the racing-green carpets, however much they recalled the era of Dick Fuld.

This week Nomura finally pulled the rug from under the Lehman legacy when it made clear it would abandon its Canary Wharf tower in favour of spacious new digs in the City of London. The decision coincides with a new marketing slogan, “Just say Nomura”. Japanese chicken katsu curry has appeared on the canteen menu. Ex-Lehman executives are fined in meetings if they mutter the “L” word. ...

Economics focus: Walk, don't run

Thu, 09 Jul 2009 11:07:54 GMT

In a guest article Justin Lin, the chief economist at the World Bank, argues that low-income countries need to make small, local banks the mainstay of their financial systems

FIXING finance is easier if you have a clear idea what it is for. What matters most is setting up a financial sector that can serve the competitive sectors of an economy. In many poorer countries, that means focusing on activities dominated by small-scale manufacturing, farming and services firms. The size and sophistication of financial institutions and markets in the developed world are not appropriate in low-income markets. Small local banks are the best entities for providing financial services to the enterprises and households that are most important in terms of comparative advantage—be they asparagus farmers in Peru, cut-flower companies in Kenya or garment factories in Bangladesh.

The experiences of countries such as Japan, South Korea and China are telling. Those countries managed to avoid financial crises for long stretches of their development as they evolved from low-income to middle- and high-income countries. It helped greatly that they adhered to simple banking systems (rather than rushing to develop their stockmarkets and integrate into international financial networks) and did not liberalise their capital accounts until they became more advanced. The experience of the United States is also instructive. Hulking national banks and equity markets become important only when a country becomes more advanced and when large capital-intensive firms dominate the economy. The rise of the New York Stock Exchange occurred only after the creation of large-scale industrial firms at the close of the 19th century. For the early labour-intensive phase of America’s economic development, local banks were dominant. ...

Exelon's takeover bid for NRG: Power struggle

Thu, 09 Jul 2009 11:07:54 GMT

The battle to create America’s biggest electricity generator continues

IT IS not so much a takeover battle as a war of attrition. It was back in October that Exelon, America’s biggest owner of nuclear-power stations, first offered to buy NRG Energy, a big generator which focuses on Texas and relies mainly on coal and natural gas. Exelon wants to create America’s biggest electricity generator, with a capacity of more than 47,000 megawatts, enough to power 45m homes. But NRG’s management rebuffed the all-stock deal, and its shareholders, at first enthusiastic, got cold feet as NRG’s rising share price made the terms less generous. Earlier this month Exelon raised its offer by 12%, but NRG’s management rejected the sweetened deal, now worth about $7 billion, on July 8th. The next skirmish will come at NRG’s annual meeting on July 21st.

The two firms are bombarding one another in barbed letters and spiky press conferences. David Crane, NRG’s boss, says that Exelon continues to undervalue NRG, noting his firm’s recent purchase of Reliant, a Texan power retailer. Exelon’s boss, John Rowe, has said that NRG’s management is simply being stubborn. NRG even filed a lawsuit claiming that Exelon had misrepresented its bid, but it was thrown out by a federal court last month. ...

The Algosaibi and Saad groups: The fallout from a falling out

Thu, 09 Jul 2009 11:07:54 GMT

A drama involving two Saudi conglomerates shakes the region

“THE family is the kernel of Saudi society,” according to the kingdom’s Basic Law. Families are also at the core of Saudi capitalism, owning the vast majority of the country’s firms. But problems affecting two of the kingdom’s most prominent family conglomerates may yet be the kernel of a wider crisis.

On one side is the venerable Gosaibi family, owners of the Ahmad Hamad Algosaibi & Brothers Company (AHAG). With their roots in farming and pearling, the Gosaibis now make their money from finance, property and shipping, as well as coating pipes, making cans and bottling Pepsi. On the other side is the Saad group, an investment company headed by Maan Al-Sanea. Born in Kuwait, where he trained in the air force, Mr Sanea married into the Gosaibi family. The billionaire’s group, named after his deceased son, accumulated assets all over the world, including substantial stakes in Berkeley, a British homebuilder, and HSBC. ...

Resuscitating the DVD: Floppy discs

Thu, 09 Jul 2009 11:07:54 GMT

The DVD is not dead, but its best years are behind it

IT IS the hottest topic in Hollywood: is the DVD dying? Ten years ago the discs rejuvenated the film business. DVDs not only offered cleaner pictures and better sound than videotape; they also looked smarter on bookshelves. People were persuaded to own films rather than simply watch them. Studios began to make twice as much from disc sales as from cinema tickets. But DVD sales, which began declining gradually in 2006, are now falling more steeply (see chart). And there is always the threat that online piracy might take off.

There is probably still some life in the format—but that does not mean Hollywood can relax. About one-third of the drop in DVD sales in the first quarter was counteracted by rising sales of high-definition Blu-ray discs, which are more profitable. Much of the remainder can be put down to belt-tightening amid the downturn. “People are still going into the shop and buying a DVD; they just aren’t buying two or three DVDs,” says Amir Malin of Qualia Capital, a media investment firm. ...

Google v Microsoft: Breaking Windows

Thu, 09 Jul 2009 11:07:54 GMT

Google takes its rivalry with Microsoft a step further

THE announcement came as a humble blog post on Google’s corporate website late on July 7th, but it heralds what could be a dramatic shake-up for the information technology (IT) industry. By promising to launch a free operating system for personal computers (PCs) later this year, the online giant is mounting a direct attack on Microsoft and its dominant Windows operating system. TechCrunch, a technology blog, reported the news as “Google Drops A Nuclear Bomb On Microsoft”.

The bomb has a very long fuse, however. The first machines running Chrome OS, as the new software is to be called, will not be available until late next year. The initial version will only be suitable for netbooks, the small, cheap laptops that have proved popular of late. The idea is to provide a compact and simple-to-use operating system that boots up in a few seconds and works securely and easily with web-based applications, such as social networks and online e-mail. The software will combine Linux, the open-source operating system, with Chrome, Google’s browser. ...

Hollywood in the recession: One-dimensional

Thu, 09 Jul 2009 11:07:54 GMT

The downturn forces sweeping changes on a reputedly recession-proof business

JOHN DAVIS has produced films such as “I, Robot” and “Norbit”, and is working on an adaptation of “Gulliver’s Travels”. He also invests in businesses as diverse as restaurants and scaffolding. These days he is much more optimistic about the film industry than anything else. It is a measure of the recession’s severity that a business built on fickle teenage audiences and multi-million-dollar wagers has come to seem comparatively reliable.

The downturn has affected Hollywood in a way that few expected. Michael Lynton, head of Sony Pictures Entertainment, says that if he had been asked to predict whether the recession would encourage people to stay at home watching the large televisions on which they had spent so much or go out to cinemas, he would have guessed wrong. So far this year box-office receipts are up by 12% over last year. Yet sales of DVDs are falling (see article). ...

Culling quangos: Ready for the chop?

Thu, 09 Jul 2009 11:07:54 GMT

Harsh words in public, but privately, politicians could not do without them

WHERE should the axe fall? The government and main opposition party are unanimous: on the “quasi-autonomous non-government organisations”, or quangos, that carry out government functions, usually with government money, but at arm’s length. On July 6th David Cameron, leader of the opposition Conservatives, promised that if his party came to power it would review the lot of them with an eye to a cull. Only those that provided essential technical expertise (like the Nuclear Installations Inspectorate), even-handedness (the research councils that dole out government money to universities) or transparency about government’s functioning (the Office for National Statistics) would survive, he said. Perhaps to steal Mr Cameron’s thunder, the Treasury had let it be known two days earlier that every government department had been asked to nominate quangos for the chop.

These agencies, authorities, commissions, panels, regulators and the like are easy targets. Some sound obscure (the Independent Reconfiguration Panel) or downright silly (Yorkshire Forward, Advantage West Midlands). Others look profligate: 68 pay their chief executives more than the prime minister’s GBP198,000 a year. Seen en masse, they are shadowy and unaccountable: there are 524, or 790, or 827, or 1,164 of them, depending on whose definition you accept, spending between GBP34 billion (the government’s figure) and GBP100 billion a year (according to the Taxpayers’ Alliance, a lobbying group). ...

The politics of public-sector pay: Missed opportunity

Thu, 09 Jul 2009 11:07:54 GMT

Politicians continue to shadow-box over the spending pain to come

FOR a tantalising moment this week, it looked as if a grown-up debate might begin about how to tackle the public finances once a secure recovery is under way. It was too much to hope for. Instead of coming clean about the sacrifices that public-sector workers may have to make as part of efforts to reduce the budget deficit, politicians are ducking and weaving.

The door for such a debate swung open after Steve Bundred, chief executive of the Audit Commission, which monitors local public spending, spelt out some blunt truths. Mr Bundred said that cuts were coming after a general election next year whoever was in power. He suggested a freeze on public-sector pay as a “pain-free way of cutting public spending”. ...

Bagehot: Pants on fire

Thu, 09 Jul 2009 11:07:54 GMT

Politicians frequently lie. So does everyone else. Why all the fuss?

THESE days Bagehot spends a lot of time pretending not to know there is a penguin in his wardrobe. It is his job to search for the penguin, while his toddler feigns ignorance about its whereabouts. Then she opens the wardrobe and triumphantly pulls out her toy. It is (naturally) very endearing. The game is also, if you stop to think about it, in the same cognitive family as lying.

Lying, as developmental psychologists have shown, is natural. It is an automatic, necessary, sometimes virtuous skill. For politicians it is—in a technical rather than pejorative sense—an essential one. These are eternal truths about falsehood. Yet, periodically, politics is dominated by lies. This seems to be one such time. The fixation of commentators and practitioners with them is telling, though not mainly about mendacity. ...

Bulgaria rejects its government: Borisov's turn

Thu, 09 Jul 2009 11:07:54 GMT

Bulgarians have elected a popular but unpredictable new leader

EXASPERATED voters boot out a bad government and install an unknown one. That is the Bulgarian election in a nutshell, after the defeat of the Socialists (ex-communists) by a centre-right populist party led by Boyko Borisov, a cigar-chomping ex-bodyguard. Citizens for European Development of Bulgaria, known by its Bulgarian acronym of GERB, took 39.7% of the vote on July 5th, entering parliament and government for the first time.

Few doubted that the Socialists would lose or that GERB would do well. Bulgaria’s leaders have been the subject of humiliating criticism by the European Commission, worried about endemic corruption and links between organised crime and some bits of government. Mr Borisov has been a lively mayor of Sofia who has shaken up the capital’s administration. But few expected voters’ discontent to be so strong. Turnout was high, at 60%. Mr Borisov won support from change-hungry voters, even if they felt queasy about his headstrong personality and spotty past. ...

Croatia's new prime minister: The dilemmas of Diocletian

Thu, 09 Jul 2009 11:07:54 GMT

The problems pile up for a new female prime minister

BUSLOADS of Japanese tourists collapse exhausted in their hotel lobbies; Serbs moon about, fretful that their cars may be vandalised; just offshore, cruise ships afford their passengers one of the finest sights in the Mediterranean. Although it is early in the season, people in Dubrovnik who live off tourism are breathing a sigh of relief. Despite the economic gloom, this season may not be the catastrophe some feared.

Nobody in Croatia thinks this is a time for complacency. So when Ivo Sanader, without warning, resigned as prime minister on July 1st, the opposition was quick to accuse him of quitting just as the country faced its worst economic crisis in years. A week later Mr Sanader’s resignation is still unexplained. He was angry that European Union leaders have not stopped Slovenia from blocking Croatia’s EU accession talks over a trivial border dispute—but nobody thinks that merited his departure. He said he was not ill. Nor was he quitting to run in next year’s presidential election. It seems instead that Mr Sanader was just fed up—like Diocletian, the Roman emperor who also hailed from Split and retired there to grow cabbages. ...

French sovereign debt: Of human superbondage

Thu, 09 Jul 2009 11:07:54 GMT

Why is Nicolas Sarkozy so eager to issue a superbond?

MOST governments borrow because they have projects or commitments that they need to pay for. Nicolas Sarkozy seems to be turning this logic on its head. Last month the French president announced plans for a superbond. This week he appointed two former prime ministers, Alain Juppe, a Gaullist, and Michel Rocard, a Socialist, to head a commission for four months to think about what to do with the money being raised.

Mr Sarkozy wants the two grandees to reflect on “priorities that justify an exceptional investment effort to prepare France’s future.” Francois Fillon, his prime minister, has written to all parties to ask for ideas. The bond will not be launched until 2010, and no amount has been specified. Mr Fillon says part will be open to individual investors: the French are among Europe’s thriftiest folk. The areas that could benefit from the money include research, innovation, renewable energy, education, health, biotechnology and infrastructure. ...

America and eastern Europe: Not captivating now

Thu, 09 Jul 2009 11:07:54 GMT

Eastern Europe watches nervously as America improves relations with Russia

WHEN he returns home, a routine task in President Barack Obama’s in-box will be to proclaim the third week of July “Captive Nations Week”. Established by Congress in 1959 to show American solidarity with countries trapped inside the Soviet empire, it amounts nowadays to little more than a press release and a couple of parties. But it echoes a decades-old American commitment to the region’s freedom and security, sealed by NATO’s expansion to include 12 ex-communist countries.

That has created both loyalty and expectations. Eastern Europe sent troops uncomplainingly to Iraq. Several countries have soldiers in Afghanistan: indeed, some smaller ones have suffered remarkably high casualties there, largely unacknowledged by their bigger allies. And Poland and the Czech Republic agreed to host a new missile-defence system to counter a possible threat from Iran. This irks the Kremlin, which claims to fear American encroachment in its own backyard. ...

Charlemagne: A Belgian national champion

Thu, 09 Jul 2009 11:07:54 GMT

A terrible lesson from a terrible painter

IN MARCH 1850 Antoine Wiertz, an artist, wrote to the newish Belgian government offering a swap: his largest paintings in exchange for the construction of a “huge, comfortable and well-lit” studio. Somewhat surprisingly, his proposal was accepted. The interior minister, Charles Rogier, agreed to hand over a large sum of money to build a studio that would, after Wiertz’s death, display his works in perpetuity. Rogier’s was a terrible decision even at the time. For today’s governments, looking on 160 years later, it stands as a masterclass in maladministration.

Wiertz’s timing was good: a mere 20 years after a revolution against Dutch rule had brought Belgium into being, the young kingdom was in search of national champions. His vast paintings earned the accolade of “giant” when shown in Rome and caused a sensation in Brussels, Antwerp and Ghent (though Parisian critics were less kind). It was reported that the violence of his Homeric battle scenes left children wailing in fear. His “Two Young Ladies”—a naked beauty contemplating a skeleton—teetered just on the right side of smut for 19th-century tastes. Wiertz, who compared himself to Rubens, admitted that some accused him of excessive pride. This was unfair, he assured the minister. “To judge a painter, you have to wait at least two centuries.” ...

The Russia/America summit: Barack, Dmitry—and (offstage) Vladimir

Thu, 09 Jul 2009 11:07:54 GMT

A meeting of pragmatism, not warmth—with potential trouble still ahead

THE body language said it all. When Barack Obama arrived in Moscow for his first summit with the Russian president on July 6th, he sat on the edge of his chair, his eyes fixed on his host, Dmitry Medvedev. Mr Medvedev sat back, revealing a mix of reserve and polite attention to what Mr Obama had to offer.

This scene reflected Russia’s general response to Mr Obama. America made the first approach and offered to “reset” the relationship. Although suspicious of Mr Obama’s intentions, Moscow nevertheless did not want to miss a chance. As Moskovsky Komsomolets, a tabloid, put it: “Why should we make a step towards Obama? Not least, because it is in our interest. Having won a war against Georgia, we confirmed our status as a great power, but ended up in isolation. Of course, we could live like this. But why not stop this isolation without ceding past achievements?” ...

The war in Afghanistan: Into Taliban country

Thu, 09 Jul 2009 11:07:54 GMT

America’s “surge” in Afghanistan begins—and allied tactics change

UNDER cover of night, driving through the desert or landing from helicopters, America’s marines went “big, strong, fast” into the Taliban’s strongholds in Helmand province. More than 4,000 marines and about 650 Afghan soldiers reached their targets in just seven hours.

Operation Khanjar (Thrust of the Sword), which began on July 2nd, was the biggest action by the marines since they retook the Iraqi city of Fallujah in 2004. But unlike their comrades in that bloody urban battle, the marines now in Afghanistan have, for the most part, thrust their swords into hot air. With the Taliban melting away in many places, the marines’ biggest enemy has often been the heat—“hot as fire”, says their commander, Brigadier-General Larry Nicholson. Some complained they had not been able to fire enough rounds to lighten their heavy packs. ...

Banyan: Blind-sided in Asia

Thu, 09 Jul 2009 11:07:54 GMT

Russia does not exactly soar in its Asian backyard

RUSSIA’S eagle, the country’s diplomats remind you, has two heads, and one faces east. The trouble is, the Asiatic head seems blind. Despite the slump, Russia’s eastern neighbours are still the world’s most vibrant economies, yet Russia’s links with Asia are weak. The country is the world’s second-biggest oil exporter and its biggest gas exporter, yet it sends just 3% of its energy exports to oil-hungry Asia. Trade and investment in eastern Siberia and the Russian Far East fall far short of their potential, and the grim dilapidation of cities like Vladivostok and Khabarovsk is a shock to anyone from Asia’s fast-moving metropolises.

Russia’s Asian diplomacy also underwhelms. Its most obvious manifestation is as a member of the six-party talks aimed at getting North Korea to give up nuclear weapons. Russia has much at stake. But North Korea mocked the talks by flouncing out, leaving Russia (and the four others) with nothing to show for their efforts. Elsewhere, Russia takes pride in hosting the Asia-Pacific Economic Co-operation (APEC) summit in 2012, in Vladivostok. Yet there is no hiding that Russia is a bit player in regional trade and that APEC is A Perfect Excuse to Chat. ...

Post-coup Honduras: Enter the diplomats

Thu, 09 Jul 2009 11:07:54 GMT

Can negotiations reinstate Manuel Zelaya?

WHEN a coup toppled Hugo Chavez from Venezuela’s presidency in 2002, it took just three days for him to return to office. Manuel Zelaya, an ally of Mr Chavez who was ousted as Honduras’s president by a military coup on June 28th, has had no such luck. Emboldened by universal condemnation of the coup and calls for his reinstatement, Mr Zelaya rashly tried to return to his country even though its new rulers vowed to arrest him if he did. After his gambit failed, his future now depends on an attempt at mediation by Oscar Arias, the president of Costa Rica.

Equipped with a plane and a journalistic entourage by Mr Chavez, on July 5th Mr Zelaya flew over Tegucigalpa airport but was prevented from landing because the army had blocked the runway. At least 10,000 people had answered his call to greet his hoped-for triumphal return. They tore down part of the fence surrounding the airport, and pelted the soldiers surrounding it with stones. The troops responded with rubber bullets and tear gas, and some appeared to have opened fire. One protester died of a gunshot wound, and dozens were injured. ...

Brazil's scandal-plagued Senate: House of horrors

Thu, 09 Jul 2009 11:07:54 GMT

What Britain’s MPs might learn from Brazilian Senators

THE president of Brazil’s Senate sits in a fine blue leather chair designed by Oscar Niemeyer, a celebrated Brazilian architect. Comfortable it may be, but its occupants have also found it to be an insecure perch. Three senate presidents have been suspended or have resigned because of scandals in the past eight years. Now a fourth, Jose Sarney, a former president of Brazil and part-time novelist, is teetering.

The Senate has just 81 members but somehow they require almost 10,000 staff to take care of them. Many of these are appointed as favours to senators’ friends or political supporters. One former staffer says that his fellow-employees used to say that the senate was like a mother to them. Others liken it to a country club. The benefits of membership include free health insurance for life for all senators and their families, generous pension arrangements and housing allowances. This much was already familiar to Brazilians and, perhaps, not so different from the goings on in many other legislatures around the world. ...

Swine flu in Argentina: Pigheaded policies

Thu, 09 Jul 2009 11:07:54 GMT

The dangers of a reputation for dodgy statistics

IT IS winter in South America’s southern cone, so it is no surprise that swine flu is rampant. But its impact is not uniform. It came first to Chile before it turned up across the Andes in Argentina. But in Argentina 2.4% of reported cases have resulted in the death of the patient while in Chile the corresponding figure is just 0.2%. Why?

Part of the answer seems to lie with the way that health services are organised. In Argentina health policies as well as health budgets are in the hands of provincial governments. That is a contrast not just with Chile’s centralised system but also with Brazil, which like Argentina is a federal country, but where the health ministry in Brasilia sets overall national goals. ...

Statewatch: Florida: Sorrow in the sunshine

Thu, 09 Jul 2009 11:07:54 GMT

Sun, sand and seniors are not enough. Florida needs to diversify

SAILORS of old sometimes mistook manatees for mermaids, which shows how months at sea quaffing rum and missing female company can cloud one’s vision. Manatees (also called sea-cows) actually look like giant underwater slugs. Yet tourists love being kissed by them. A friendly manatee may swim right up and touch your face with his. Some people find this spiritually uplifting. Others merely think it fun to touch something so bulbous and endangered.

Either way, Crystal River, home of perhaps the world’s largest herd of wild manatees, has long profited from hordes of holidaymakers flying thousands of miles to swim with them. But not this year, alas. “It’s the holiday weekend and the boat is half-empty,” grumbled Mike Birns, a guide for Sunshine River Tours, a small local operation, on the Thursday before July 4th. ...

California's budget crisis : Meltdown on the ocean

Thu, 09 Jul 2009 11:07:54 GMT

As the state’s finances disintegrate, for many so does the California Dream

ALTHOUGH one would hardly know it from the antics of its politicians—or from its newspapers, which all this week were fixating on Michael Jackson’s funeral rites—California is in as serious a condition as an American state can be. Legally unable to declare bankruptcy as a company would, the state has begun paying many of its bills with IOUs instead of cash. One of the three big credit-rating agencies, Fitch, this week downgraded the state’s bonds, already the lowest-rated such bonds in the country, to BBB, within spitting distance of “junk”. Government offices are closed on some days, as state workers take involuntary and unpaid furloughs. Taxpayers are still waiting for refunds. Poor people are afraid of losing their state-funded health insurance. Parents, fearing ever shabbier public schools, have another reason to think about moving out of state.

Meanwhile, the governor, Arnold Schwarzenegger, and the leaders of the legislature have been frantically scoring points off each other in Sacramento, the state capital. As the previous fiscal year drew to a close on June 30th, Darrell Steinberg, the Democratic leader of the Senate, and Karen Bass, the Democratic leader of the Assembly, were proposing some stopgap measures that would have saved a dollop in the new fiscal year and averted the issuing of IOUs. But the Republican governor, claiming to insist on all or nothing, said no. Overnight, the budget gap swelled to a staggering $26.3 billion and now grows by an estimated $25m each day. ...

Lexington: The passing of Palin

Thu, 09 Jul 2009 11:07:54 GMT

Sarah Palin will never be president. But her resignation leaves a gap in American politics

ON A trip to Alaska three years ago, Lexington watched a former small-town mayor perform in a Republican primary debate. One of her rivals was the sitting governor, a man of far greater political experience. She trounced him. Granted, he was so dull that even his campaign song admitted it. Still, it was an arresting performance.

Strange to recall, when John McCain picked Sarah Palin as his running-mate last year, almost no one had heard of her. Now she is the most divisive figure in America. To mention her name at a dinner party in the highly educated liberal suburb where Lexington lives is to ask for trouble. “Moron”, “idiot” and “megalomaniac” are some of the gentler epithets that will be used. Some will admit to hating her. Many will guffaw at her trashy family. Yet half the country loves her. ...

California v Texas: America's future

Thu, 09 Jul 2009 11:07:54 GMT

An intriguing, much more equal rivalry out West. But both California and Texas can learn from each other

AMERICA’S recent history has been a relentless tilt to the West—of people, ideas, commerce and even political power. California and Texas, the nation’s two biggest states, are the twin poles of the West, but very different ones. For most of the 20th century the home of Silicon Valley and Hollywood has been the brainier, sexier, trendier of the two: its suburbs and freeways, its fads and foibles, its marvellous miscegenation have spread around the world. Texas, once a part of the Confederacy, has trailed behind: its cliche has been a conservative Christian in cowboy boots, much like a certain recent president. But twins can change places. Is that happening now?

It is easy to find evidence that California is in a funk (see article). At the start of this month the once golden state started paying creditors, including those owed tax refunds, business suppliers and students expecting grants, in IOUs. California’s governor, Arnold Schwarzenegger, also said that the gap between projected outgoings and income for the current fiscal year has leapt to a horrible $26 billion. With no sign of a new budget to close this chasm, one credit agency has already downgraded California’s debt. As budgets are cut, universities will let in fewer students, prisoners will be released early and schemes to protect the vulnerable will be rolled back. ...

India's budget: Have a little more patience with Mr Mukherjee

Thu, 09 Jul 2009 11:07:54 GMT

Though not as bad as investors think, India’s budget leaves the government with a lot to do

INVESTORS were not impressed with the budget which India’s new government presented on July 6th. They expected bold reforms to hasten the country back to its recent 9% annual growth rate. But, in Bengali-accented English, Pranab Mukherjee, the finance minister, promised money to indebted farmers, middle-class taxpayers and infrastructure projects. He had less to offer investors. At best he scrapped a couple of nuisance taxes and promised to increase “people’s participation” in state-owned companies—meaning “disinvestment”, which Indians use to describe partial privatisation.

A euphemism for a euphemism for liberalisation was less than the markets wanted. The Bombay Stock Exchange had risen steeply since the Congress party won re-election in May, but as Mr Mukherjee resumed his seat in India’s Parliament it tumbled by almost 6%. ...

The great public-sector pension rip-off : Dodging the bill

Thu, 09 Jul 2009 11:07:54 GMT

It is time to recognise the full costs of public-sector pension schemes to the rest of us

JOIN a private-sector company these days and you will be very lucky if you get a pension linked to your final salary. In Britain almost three out of four companies that retain such schemes have closed them to new employees. The cost of paying such benefits, which are partly linked to inflation and offer payouts to surviving spouses, is simply too high now that many retirees are surviving into their 80s.

Yet most new public-sector employees in Britain and America continue to benefit from pensions linked to their salaries. The pension costs facing the public sector are roughly the same as those facing the private sector; their employees are likely to live just as long. But because of the presumed largesse of future taxpayers, governments seem under much less pressure to reduce their pension costs. In 2005 a reform package in Britain raised the retirement age for new state employees, but still left existing employees able to retire at 60. ...

Regulating banks: Appetite suppressant

Thu, 09 Jul 2009 11:07:54 GMT

Capital rules now seem the only way to tame the banks. They will need to be tighter than in the past

BANKS and free lunches traditionally go together. Lenders are run for private benefit, but taxpayers underwrite them if things go wrong. Yet the scale of support that has been extended in the current financial crisis is unprecedented: the entire system has been explicitly guaranteed. Even as unemployment soars, bankers are talking again of big bonuses and a “war for talent”. The woeful legacy of the crisis could be a supersized banking system gorging on the taxpayers’ tab.

Regulators want to prevent this, and their tool of choice now seems to be tighter capital-adequacy rules. This week Britain announced reforms that put a strong emphasis on capital (see article), and other countries are expected to do the same in the coming months. Even though banks have often found their way round such rules in the past, this approach probably makes sense for two reasons. ...

Mexico's mid-term election: The perils down south

Thu, 09 Jul 2009 11:07:54 GMT

Mexico is in trouble; one way out would be for Felipe Calderon and the PRI to join forces

OVER the past decade Mexico may not have enjoyed explosive economic growth, but it has achieved something equally valuable. As it has transited rather painlessly from seven decades of rule by the Institutional Revolutionary Party (PRI) to a competitive democracy, the country has discovered a new stability. Problems and poverty remain, but thanks partly to the much-maligned North American Free-Trade Agreement (NAFTA) linking Mexico’s economy to those of the United States and Canada, there was quiet progress. Most Mexicans can now claim to be middle-class.

This stability looks in jeopardy. A crackdown on drug-trafficking, launched by Felipe Calderon after he narrowly won the presidency in 2006, has provoked a wave of violence. Albeit fairly localised, this shows no sign of subsiding. Efforts to create a new, uncorrupt police force are moving very slowly. Worse, Mexico has been deeply hurt by recession, mainly because much of its industry is tied to the sickest segments of the American economy—cars and construction—while its migrant workers north of the border are sending less money home. And now swine flu has knocked out the tourist industry. The economy is set to shrink by around 6% this year. Unemployment is soaring. Migration to the United States no longer offers a safety valve: crossing the border has become riskier, and those who make it have little prospect of a job. ...

Riots in Xinjiang: Beijing's nightmare

Thu, 09 Jul 2009 11:07:54 GMT

The Uighurs’ revolt undermines China’s idea that its people will always happily trade freedom for prosperity

SPOT the odd one out: Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, Xinjiang. Since the unravelling of the Soviet Union and the birth of the Central Asian republics, the vast swathe of China known as the Xinjiang Autonomous Region has seemed a cartographic anomaly. “Uighurstan” has never been on the cards for the ethnic-Turkic Muslims of the region, who now make up slightly under half its 20m population. But Communist Party officials in Beijing have nevertheless fretted about the linked threats of extremist Islam and secession. Vicious race riots this week in Xinjiang’s capital, Urumqi, have caused the deaths of over 150 people and shown just what a hash the regime has made of fostering stability.

The bloodiest known incident of unrest in China since the massacre that ended the Tiananmen Square protests in 1989 embarrassed China’s president, Hu Jintao, into skipping the G8 summit in Italy. That is not surprising. Though distant from Beijing, the unrest in Xinjiang calls into question basic assumptions about China made by both the government and foreign investors: that Chinese citizens are ready to trade political dignity and fairness for economic progress and wealth; and that irrational forces, such as religion and ethnic nationalism, are distractions that can be bludgeoned away to enable the smooth technocratic transformation of society. ...

On the Elgin marbles, Romano Prodi, clearing houses, wine, drugs, fund management, voters, meritocracy

Thu, 09 Jul 2009 11:07:54 GMT

SIR – I chuckled at your use of the term “moral clarity” when describing the Greek request that the British Museum return the Elgin marbles to Athens (“Snatched from northern climes”, June 27th). Athens was the force behind the Delian League of Greek city-states in the 5th century BC, which was founded to provide money for the common defence against Persia. The funds raised, however, did not go towards defence but were used by the Athenians to pay for expensive building projects on the Acropolis, including the Parthenon. The city-states that did not want to pay were conquered and their citizens became subjects of Athens. The league was no longer a mutual protection pact; it was “the cities that the Athenians rule”.

The classical Athenians extorted money to craft what have become known as the Elgin marbles; now their descendants want the works returned to them. I propose instead that the marbles be returned to the descendants of the people who helped pay for them in the first place, and who now live in the Delian League’s former cities along the eastern Aegean. For moral clarity, the Elgin marbles should be returned to Turkey. ...

Henry Kissinger in 1973: A year to remember

Thu, 09 Jul 2009 11:07:54 GMT

A biography focusing on the apex of Super-K's career

Kissinger: 1973, The Crucial Year. By Alistair Horne. Simon & Schuster; 457 pages; $30. To be published in Britain as “Kissinger's Year” by Weidenfeld and Nicolson next month. Buy from Amazon.com

THE year 1973 was Henry Kissinger’s annus mirabilis. Early on he announced it would be the “Year of Europe”. In the end that was almost the only thing it was not. ...

The Taliban and drugs: What to do?

Thu, 09 Jul 2009 11:07:54 GMT

Two new books on what Afghanistan and Pakistan need from the West

Seeds of Terror: How Heroin is Bankrolling the Taliban and al-Qaeda. By Gretchen Peters. Thomas Dunne; 320 pages; $25.95. To be published in Britain by Oneworld Publications in September. Buy from Amazon.com

To Live or To Perish Forever: Two Tumultuous Years in Pakistan. By Nicholas Schmidle. Henry Holt; 254 pages; $25 and GBP18.99. Buy from Amazon.com, Amazon.co.uk ...

China's future: Enter the dragon

Thu, 09 Jul 2009 11:07:54 GMT

The West hopes that wealth, globalisation and political integration will turn China into a gentle giant. A new book argues that this is a delusion

When China Rules the World: The Rise of the Middle Kingdom and the End of the Western World. By Martin Jacques. Allen Lane; 592 pages; GBP25. To be published in America by Penguin Press in November. Buy from Amazon.co.uk

THERE have been many rivals for America’s crown as the world’s greatest power. In the 1950s the Soviet Union threatened its military hegemony; in the 1980s Japan challenged its economic might. These days the pretender is China. The evidence of America’s decline seems obvious. The limits of its military power were exposed after the invasion and occupation of Iraq, and the flaws of its capitalist system were revealed by the global financial crisis that started on Wall Street. The West now looks to China to prop up its financial system, and to the Chinese consumer to stimulate the global economy. ...

Physics and philosophy: Much ado about nothing

Thu, 09 Jul 2009 11:07:54 GMT

The latest scientific thinking on the subject of nothing

Nothing: A Very Short Introduction. By Frank Close. Oxford University Press; 157 pages; GBP7.99. To be published by OUP in America next month. Buy from Amazon.co.uk

DOES anything remain when everything is taken away? This question has perplexed philosophers for thousands of years. In a new treatment, Frank Close, a physicist, examines the latest scientific thinking on the subject. ...

Science and the Enlightenment: Gift of illumination

Thu, 09 Jul 2009 11:07:54 GMT

A captivating study of the heyday of Romantic science

The Age of Wonder: How the Romantic Generation Discovered the Beauty and Terror of Science. By Richard Holmes. Pantheon Books; 552 pages; $40. HarperPress; GBP25. But from Amazon.com, Amazon.co.uk

RICHARD HOLMES’S new book, which was published to great acclaim in Britain last October and is now, finally, coming out in America, is a captivating study of the late 18th and early 19th centuries, the heyday of Romantic science. Romanticism is generally perceived as the polar opposite of science, “its ideal of subjectivity eternally opposed to that of scientific objectivity”. But Romantic science emerges from this subtle, illuminating and hugely enjoyable work as an idea of many parts. ...

The Hermitage Amsterdam: Carousel of treasures

Thu, 09 Jul 2009 11:07:54 GMT

The Hermitage’s new satellite museum in Amsterdam should encourage visitors to spend an extra day in the Dutch capital

THE Dutch queen and the Russian president watched as fireworks soared above the River Amstel. The Hermitage Amsterdam, a new museum for exhibiting loans of Russian art, was officially open, with an inaugural show entitled “At the Russian Court: Palace and Protocol in the XIXth Century”. The evening’s celebrations were televised live. Local residents seemed uniformly pleased, proud and relieved. At last a museum success story.

Amsterdam is famous for its outstanding galleries. However, the Rijksmuseum has been under reconstruction since 2003 and the Stedelijk, with its internationally celebrated collection of modern art, since 2004. Their reopening, pushed back repeatedly, appears to be years away. But the Hermitage Amsterdam, the radically renovated Amstelhof (a nursing home from its construction in the 17th century until 2007) was on budget, at €40m ($56m), and speedy, taking just two years to complete. The running costs will be covered by ticket sales and corporate sponsors. (The St Petersburg Hermitage will receive €1 from each full-price entry.) Ernst Veen, a cultural entrepreneur, masterminded the scheme and is now the museum’s director. Many feel that his spearheading of this public-private partnership, rare in the Netherlands, is the key to its success. Not one of the original sponsors has dropped out, despite the turmoil in the financial markets. Their confidence has been vindicated. Hans van Heeswijk’s architectural renovation is a triumph. ...

Solar power and the Sahara desert: The start of something big?

Wed, 08 Jul 2009 12:14:00 GMT

Solar electricity may be about to attract real money

IT IS an old idea. Build solar power stations in the Sahara desert and transport the electricity produced to Europe using high-voltage, direct-current (HVDC) cables. It is simple in theory, but hard in practice—and very, very costly. But it is a carbon-dioxide-free way of making a lot of electricity, and a collecting area the size of Austria could supply the world.

A meeting on July 13th might get the ball rolling. Munich Re, the world’s largest reinsurance company, has invited 20 large companies (including Siemens, Germany’s engineering giant; power suppliers RWE and E.ON; and Deutsche Bank, Germany’s biggest) to join it in forming a consortium called Desertec. If all goes well, this will eventually build a legion of solar power stations in Africa and Arabia, and connect them to Europe. ...

Evolution and climate change: Survival of the less fit

Fri, 03 Jul 2009 04:53:46 GMT

The mystery of Scotland’s shrinking sheep may have been solved

ON THE remote island of Hirta, in the St Kilda archipelago beyond the Outer Hebrides, live hundreds of wild Soay sheep. Over the past 20 years biologists studying this primitive breed, which has not changed much since the Bronze Age, have noticed that the sheep are getting smaller. This was a puzzle because, in general, bigger animals are usually much better at surviving the island’s extremely cold winters. The biologists now think that climate change could be involved.

Tim Coulson of Imperial College, London, and his colleagues examined the weights of about 2,000 female sheep that lived on the island in the two decades of their study. They combined this information with detailed histories of individual animals. They found that daughters were, on average, lighter than their mothers had been at the same age. Their legs were shorter, too, suggesting that the breed really was shrinking. ...

Unemployment insurance: More money, more problems

Thu, 02 Jul 2009 10:54:22 GMT

A few Republicans are holding out against more unemployment insurance

MARK SANFORD, the Republican governor of South Carolina, is a strict fiscal disciplinarian. When Washington announced its economic stimulus plans last year, he opposed the whole idea. At the time his state’s unemployment rate was among the highest in the nation, and in December the fund that doles out unemployment benefits ran out of money. As the months went on South Carolina’s situation only worsened and Mr Sanford accepted bits of federal money here and there, complaining all the while. And in June the South Carolina Supreme Court ordered him to request the unemployment money.

Critics accused him of grandstanding with an eye to the 2012 presidential election—at least until his chances were sunk by a scandal involving adultery, Argentina and the Appalachian Trail: Mr Sanford may have to stand down as governor. But Haley Barbour, the Republican governor of Mississippi, is ready to take his spot. Earlier this year he said he did not want federal money for unemployment insurance because it would force Mississippi to pony up for people who are “not willing” to take a full-time job. Mississippi’s malingering rate has soared to 9.6%, but Mr Barbour has not relented. ...

Overview

Thu, 02 Jul 2009 10:54:22 GMT

The unemployment rate in Japan rose to 5.2% in May from 5% in April. Industrial production jumped by 5.9% in May, after a similar rise in April. Big manufacturing firms were less gloomy in June than they had been in March, according to the Bank of Japan’s quarterly Tankan survey. The percentage balance of firms reporting “favourable” over “unfavourable” conditions rose to minus 48 from a record low of minus 58.

In America the Institute for Supply Management’s manufacturing index rose for the sixth month in a row, to 44.8. Readings below 50 point to shrinking activity but the pace of contraction is at least slowing. Consumer confidence faltered in June after rising in each of the previous three months, according to the index published by the Conference Board, a business-research firm. ...

Output, prices and jobs

Thu, 02 Jul 2009 10:54:22 GMT

The Economist commodity-price index

Thu, 02 Jul 2009 10:54:22 GMT

High-net-worth individuals

Thu, 02 Jul 2009 10:54:22 GMT

The wealth of the world’s high-net-worth individuals (HNWIs) fell by almost a fifth last year to $33 trillion, according to the 2009 World Wealth Report from Merrill Lynch and Capgemini. A HNWI has at least $1m of assets besides his main home, its contents and collectable items. In 2008 the number of HNWIs went down to 8.6m, just over 0.1% of the world’s population. Their wealth declined by more than 20% in North America, Europe and Asia, but by a bit less in Africa and the Middle East. Latin America’s rich were the least affected: they lost 6% of their wealth, and the number of HNWIs there fell by less than 1%. In North America, which had a large proportion of people just above the $1m threshold, the ranks slimmed by 19%.

...

Trade, exchange rates, budget balances and interest rates

Thu, 02 Jul 2009 10:54:22 GMT

Markets

Thu, 02 Jul 2009 10:54:22 GMT

Global mergers and acquisitions

Thu, 02 Jul 2009 10:54:22 GMT

The value of global mergers and acquisitions (M&A) fell by 35% in the first half of 2009 to $1,140 billion, according to Dealogic, a financial-analysis firm. The number of deals had been steadily shrinking, but they collapsed by more than 15% in the three months to June. Buy-outs by private-equity firms have been hit particularly hard by the recession. Their value fell by 82% to $24 billion in the six months to June. Australia, the most important location for M&A after America and Britain, saw a big increase in activity in the first half. So did the Netherlands and South Africa. Finance remains the richest industry for M&A, accounting for almost a fifth of deals by value, followed by health care and mining.

...

Reforming finance: the EU's proposals: Divided by a common market

Thu, 02 Jul 2009 10:54:22 GMT

In the first of an occasional series on the reform of finance, we look at the European Union’s proposals

GIVEN its history of financial meltdown and subsequent recovery, Sweden, which assumed the presidency of the European Union on July 1st, is the ideal country to orchestrate the reform of Europe’s financial landscape. Its reputation for levelheadedness will come in handy too. The EU remains riven by two deep divides on the regulation of finance.

The first is an ideological one over the degree of freedom that should be afforded to markets. It pits a weakened and distracted Britain, whose appeal as a financial centre in less troubled times was enhanced by its “light-touch” regulation, against countries such as France and Germany, which feel their long-standing distrust of freewheeling markets has been vindicated. “There is a large body of people who say that the Anglo-Saxon model has failed,” says a person involved in the new regulations. “Now they see the chance to bury it.” Tougher regulations may also peg London back in its rivalry with other European centres such as Frankfurt or Paris. ...

House prices and the wealth effect: Home discomforts

Thu, 02 Jul 2009 10:54:22 GMT

Brighter data on house prices may not signal a surge in spending

AFTER a long winter, spring brought a touch of sunshine to American house prices. The latest Case-Shiller indices, released on June 30th, showed that prices continued to fall in April: the ten-city index was 0.7% lower than a month earlier, and the 20-city index went down by 0.6%. But these falls were the smallest since June 2008. So even though house prices in America were still roughly 18% lower than a year earlier, many now suspect that the worst is over.

Such optimism may be premature. On June 30th the Office of the Comptroller of the Currency, a bank regulator, said that the number of foreclosures in process rose by 22% in the first quarter of this year, and that the number of prime mortgages with payments at least 60 days late went up by 20%. The government is stepping up its efforts to get people to take part in its anti-foreclosure programmes. ...

Bernard Madoff: The Madoff affair

Thu, 02 Jul 2009 10:54:22 GMT

Bernard Madoff's sentencing

Bernard Madoff received a 150-year jail sentence, the maximum possible under American law, on June 29th for overseeing a $65 billion Ponzi scheme. The punishment of Mr Madoff whose fraud was described as “extraordinarily evil” by the judge, still leaves many questions unanswered. Prosecutors continue to investigate whether he was acting in concert with others. Efforts to retrieve money placed with Mr Madoff by duped investors will drag on for years. An internal inquiry by the Securities and Exchange Commission into its failure to spot what he was up to is due to report its findings in a few weeks. Fund managers should not escape scrutiny either. Some clearly winked at Mr Madoff’s smooth returns in the belief that he was exploiting inside information.

...

Corporate bankruptcies in America: The boom in busts

Thu, 02 Jul 2009 10:54:22 GMT

Bankruptcies are at near-record levels

IT IS not quite the Armageddon that was being predicted in the weeks after Lehman Brothers became America’s biggest corporate bankruptcy last September. But this recession is still on course to be second only to the Depression in terms of companies going bust. Measured by the firm’s assets at the time of filing for protection from their creditors, the past year has seen five of the eight biggest bankruptcy filings in the history of American business—with Washington Mutual, Thornburg Mortgage, General Motors (GM) and Chrysler joining Lehman on the list.

A good indicator of the awfulness of the downturn is the market for junk bonds, which surely deserve the name again after nearly two decades of attempts to rebrand them as safer-sounding “high-yield debt”. At the end of May 9.2% of high-yield debt issues (globally, but dominated by American paper) had defaulted during the previous 12 months, compared with less than 1% in the year to December 2007. The failure rate is on course to hit 13.8% in the fourth quarter of this year, according to Moody’s, a credit-rating agency, after which it should start to decline. That would be slightly higher than in the two previous recessions, when the percentage of defaults peaked at 10.9% (in January 2002) and 12.8% (in June 1991), but below the all-time high of around 16.3% in 1933. ...

Restructuring South Korea's chaebol: A helping hand

Thu, 02 Jul 2009 10:54:22 GMT

Is the government taking a hard enough line with indebted conglomerates?

ON THE face of things, the restructuring of South Korea’s heavily indebted family-owned conglomerates (chaebol) is proceeding apace. On June 28th the eighth-biggest, Kumho Asiana, said it would sell its one-third stake in Daewoo Engineering & Construction, one of its biggest units. Past governments have coddled chaebol, but the current one says free-market principles should prevail. Regulators say that they have been urging banks to take a hard line with nine struggling chaebol, including Kumho Asiana.

In addition to Daewoo, Kumho Asiana owns Asiana, the country’s second-biggest airline, and petrochemical, tyre, life-insurance, resort and transport businesses. As with other chaebol, descendants of the founder still control the business. In 2008 it used its airline and Daewoo to become the biggest shareholder in South Korea’s biggest logistics company, Korea Express. That acquisition, along with the purchase of Daewoo in 2006, has left it with debt of 15 trillion won ($11.8 billion). Moreover, the 18 South Korean banks and other investors that had bought almost 40% of Daewoo alongside Kumho Asiana are likely to exercise an option in December to sell the conglomerate their shares at a price of 31,500 won—over three times the level of June 26th. So Kumho Asiana needs to find another 4 trillion won. ...

Russia's dismal investment climate: Courting disaster

Thu, 02 Jul 2009 10:54:22 GMT

Legal and bureaucratic caprice is still undermining foreign investment

THE website of Telenor, a state-controlled Norwegian telecoms firm, has a special section dedicated to its investments in Russia and its dispute with Alfa Group, its Russian partner. It is a long and unhappy saga filled with headings such as “Geneva arbitration”, “Court abuses” and “Black PR campaigns”.

Telenor and Altima, the telecoms arm of Alfa, are shareholders in both VimpelCom of Russia and Kyivstar of Ukraine. In 2004 Altima, which wanted to expand its business in Ukraine further, suggested that VimpelCom buy another Ukrainian telecoms firm. Telenor resisted, saying that the price was too high. Altima accused Telenor of sabotaging its growth. ...

Foreign oil firms in Iraq: Waiting game

Thu, 02 Jul 2009 10:54:22 GMT

The Western giants hold out for a better offer

FOR some conspiracy theorists, the war in Iraq was always about gaining control of the world’s third-largest oil reserves for Western energy firms. True or not, things are not panning out that way. This week most big oil companies turned their backs on the first opening of Iraqi production to foreign investors since Saddam Hussein nationalised the industry 37 years ago.

The oil ministry, which wants to lift crude output from 2.4m barrels a day (b/d) last year to 6m b/d by 2017, hoped a much-delayed licensing round for eight of the country’s biggest oil- and gasfields would bring international firms—with their capital and expertise—back to Iraq. But the televised auction proved embarrassing for Hussein al-Shahristani, Iraq’s oil minister. Just one contract was awarded, to a joint venture between BP and China’s CNPC, which beat a bid from Exxon Mobil and Petronas of Malaysia. That contract covers the Rumaila oilfield, Iraq’s second largest. BP and its partner must now increase its output from 1m b/d to 2.85m b/d within six years. Their reward will be $2 a barrel, half the amount BP originally sought. ...

Corporate tax: Escaping the shakedown

Thu, 02 Jul 2009 10:54:22 GMT

Governments are not raising corporate tax, but firms can no longer count on the taxman to treat them ever more kindly

WHEN the Irish government, reeling from bank failures and a monumental property crash, unveiled an austerity budget in April, it socked individuals with higher taxes. But it left its corporate-tax rate—the lowest among OECD countries—unchanged at 12.5%. Last year Germany cut its corporate-tax rate from 39% to 30%. Canada is pressing ahead with plans to lower its combined federal-provincial rate to 25%. Russia has also reduced its corporate taxes, and Singapore intends to do so. According to the International Bureau of Fiscal Documentation (IBFD), an Amsterdam-based group that follows international tax developments, no country plans to raise its main corporate levy.

Despite spiralling budget deficits and the widespread belief that corporate greed precipitated the credit crunch, governments do not seem inclined to call on businesses to fill their empty coffers. Last August Japan, which has the OECD’s highest corporate-tax rate, proposed exempting dividends paid to Japanese multinationals by foreign subsidiaries from tax, even as it planned, in effect, to raise more from individuals by increasing value-added tax. The dividend exemption came into force in April. In the same month Britain unveiled a budget that, like Ireland’s, promised to clobber wealthy individuals but, like Japan’s, exempted dividends paid by foreign subsidiaries from tax. ...

Airlines in the recession: Running on empty

Thu, 02 Jul 2009 10:54:22 GMT

Lufthansa’s unenthusiastic embrace of BMI is a sign of the times

ON JULY 1st Lufthansa finally took control of BMI, the second-biggest carrier at Heathrow airport. But the only person celebrating was Sir Michael Bishop. A fortnight earlier the 67-year-old entrepreneur had forced the German airline to honour a decade-old put option to add his 50% stake to the 30% it already held, albeit at a lower price: GBP223m ($368m) rather than GBP292m.

That the deal had to be imposed on Lufthansa, almost literally on the steps of the High Court in London, was a sign of the times. Until quite recently, the chance to acquire BMI’s 11% share of take-off and landing slots at Heathrow would have been enviable. In 2007 American airlines, eager to take advantage of new “open skies” rules, were paying up to GBP25m for each pairing of slots. But these days, faced with one of the most savage downturns in the history of a notoriously cyclical industry, Lufthansa is desperately trying to conserve cash and cut capacity to match plunging demand. ...

The recession spurs self-service: Help yourself

Thu, 02 Jul 2009 10:54:22 GMT

Customers are working for companies free of charge, and they like it

AMERICANS worried that cheap labour in faraway countries threatens jobs at home should redirect their gaze to the mirror. Yes, companies are outsourcing jobs—to their customers. They are steering ever greater numbers to ATMs instead of tellers, websites instead of telephone hotlines and automated checkouts instead of manned registers. The recession is making them even keener.

Self-service is on the rise in industries from retailing and entertainment to travel and telecommunications. According to VDC Research Group, retailing, hospitality and health-care firms spent $2.8 billion on self-service technology in 2008. Between now and 2013 their investment will grow by around 15% a year. Speech-recognition technology, which permits automated responses to telephone calls, is also faring well. Datamonitor Group, a consultancy, expects spending on that to rise by around 8% in 2009. ...

Economic prospects: After the fall

Thu, 02 Jul 2009 10:54:22 GMT

Any revival will be from a terrible starting point, and may prove anaemic

FEW politicians have more acute antennae than Peter Mandelson, now in effect the deputy to Gordon Brown. In January the business secretary slapped down a junior minister when she spotted some premature green shoots of economic recovery. But this week Lord Mandelson felt confident enough to say that the worst of the recession was over, and that the economy was on course to return to growth later this year.

That is certainly the story being told by business surveys that measure the pulse of activity. After detecting a nascent recovery in private services in May, purchasing managers sensed a further improvement in manufacturing in June. They reported on July 1st the first increase in output in this hard-hit sector since March 2008. ...

ID cards for farm animals: Shepherd's warning

Thu, 02 Jul 2009 10:54:22 GMT

Britain digs in its hooves over EU rules on electronic tagging

MODERN food-production methods move animals about a lot before they wind up on dinner tables. So, as the British government found out in the 2001 outbreak of foot and mouth disease (FMD) among cattle, tracing the origins of an epidemic can be tough. To make disease control easier, the European Union decided that all sheep, which also get FMD, should have identity cards in the form of electronic ear tags. That way they can be monitored, just as supermarkets use radio-frequency identification microchips in packaging to track their stock. Tracing infected animals back to their home farms is crucial for disease control.

It seems a good idea. It should also make controlling scrapie, a nasty sheep disease that can remain undetected for years before symptoms show, much easier. America started using the same technology in 2001 and stepped up an animal-testing programme to wipe out scrapie. The disease turned out to be more widespread than was first thought but, since 2005, the number of flocks testing positive has fallen by about 77%. ...

New plans for schools: Never-ending story

Thu, 02 Jul 2009 10:54:22 GMT

The next instalment in an epic adventure in education

TO HEAR Ed Balls, the schools secretary, tell it, the saga of British education since the Labour Party came to power in 1997 is a rousing one of derring-do. The government set targets for literacy and numeracy—and lo, literacy and numeracy rocketed. It prescribed teaching methods in these basics (and much else)—and teaching standards soared too.

The next chapter in this absorbing drama was foretold on June 30th, in the latest education white paper. Parents will be able to demand catch-up tuition for their darling dullards, or challenging lessons for their gifted lads and lasses. They will be enlightened by new school “report cards” that set out matters academic (exam and inspection results), social (sport and healthy eating) and sundry (“partnership working” with other schools), both separately and in an overall grade. Naughty children will finally be tamed by forcing parents to sign agreements to make them behave. Teaching will be transformed (again) by re-licensing teachers every five years. ...

PFI deals in recession: Singing the blues

Thu, 02 Jul 2009 10:54:22 GMT

Recession is heaping problems on a controversial form of public investment

SQUINT a bit and it could be the early 1990s. The recession—and the government’s subsequent Keynesian conversion—has shattered the cosy consensus that once existed on public spending. At a bad-tempered Prime Minister’s Questions on July 1st, David Cameron, the Conservative leader, accused Gordon Brown, and not for the first time, of misleading the public over the scale of the spending cuts (or tax rises) needed to bring the national accounts back into balance. For his part, the prime minister is keen to raise before the public the old spectre of “Tory cuts”.

Spending is shaping up to be the main battleground of the next election. That will refocus attention on the Private Finance Initiative (PFI), a public-spending approach under which private firms build and run bits of national infrastructure in return for decades of payments from the government, all enforced by contracts lasting for 20 or 30 years. First dreamed up under John Major, the last Conservative prime minister, the scheme has expanded hugely under Labour. From relatively simple projects to build roads and bridges and the like, large chunks of public spending have fallen within its ambit, including Labour’s much-trumpeted new schools and hospitals as well as prisons (see article) and mid-air refuelling jets for the Royal Air Force. The PPP Forum, a trade association for firms taking part in PFI schemes, reckons that 630 of them have been put in place since 1992, covering investment of GBP63 billion. Unison, a trade union sceptical of PFI, says taxpayers will pay private firms GBP217 billion in “user charges” for these facilities between now and 2033. ...

Private prisons: Criminal enterprises

Thu, 02 Jul 2009 10:54:22 GMT

How PFIs have worked in the justice sector

“IT IS not appropriate for people to profit out of incarceration,” said Jack Straw, then an opposition MP, in 1995. Mr Straw is now the justice secretary, and he has changed his mind. There are 11 privately run prisons in England and Wales, holding about a tenth of the total jail population, a bigger chunk than in America or anywhere in Europe. Mr Straw now wants to commission five more. Like most existing private jails, they are likely to be built and run through a Private Finance Initiative, or PFI.

Getting the private sector to build and run prisons has brought tangible benefits. One is speed: private jails are built in as little as two years, rather than the seven that they used to take when the government did the building. Running costs are lower too, mainly because staff are paid a quarter less than in the public sector (though senior managers are paid more) and get fewer benefits. ...

Renationalising the railways: End of the line

Thu, 02 Jul 2009 10:54:22 GMT

Another retreat from the East Coast line shows confusion in railway policy

THE history of Britain’s railways is a baroque and convoluted 150-year tale in which dozens of companies have merged, split, gone bankrupt, been nationalised, been reprivatised and so on. The latest twist came on July 1st, when the government announced that it was taking back the London-to-Edinburgh East Coast Main Line (ECML) because National Express, the transport conglomerate responsible for running trains on it, was no longer able to make its contracted payments. This comes just two years after the previous operator on the line, GNER, lost its contract.

The proximate cause is the recession. A smaller economy means fewer passengers. The drop in numbers was particularly sharp for profitable first-class travellers, as firms cut back on their travel budgets. ...

Gordon Brown's latest relaunch: The election starts here

Thu, 02 Jul 2009 10:54:22 GMT

The policies that will pave the way for next spring’s contest

THERE are few trustier gambits in the Brownite playbook than the set-piece parliamentary announcement. As chancellor of the exchequer Gordon Brown supplemented the annual budget with a pre-budget report and a biennial spending review. These opportunities to set the terms of debate, and to stage carefully prepared appearances rather than have to think and communicate on his feet, continue to enthuse him as prime minister.

The latest example, a preview of the government’s legislative agenda on June 29th, doubled up as the unofficial start of the general-election campaign. Mr Brown’s bills will be fully itemised later this year in the Queen’s Speech, another government-managed exhibition in Parliament. But most of the policies he plans to pursue before going to the polls, most likely next spring, are now apparent. ...

India's new identity card: Peering into their murky world

Thu, 02 Jul 2009 10:54:22 GMT

India hires a famous entrepreneur to shine a light on its invisible masses

FOR Chanda, a middle-aged mother of two, moving to Delhi last year involved a trade-off. It brought her employment on the capital’s roads, for which she earns 2,000 rupees ($41) a month; in her village in Madhya Pradesh (MP) she could find no work at all. But Chanda and her family lost the state benefits—cut-price wheat, rice and cooking-oil—they had been receiving because, though they are still eligible to receive alms, the BPL (“below-poverty line”) card with which she claimed for them in MP is not recognised in Delhi. Nor is her voter-registration card, which allows her to vote only in her native village. Though all-too apparent, squatting under plastic sheeting on a Delhi pavement, she and her children are officially invisible.

Among India’s roughly 100m internal migrants, there are many like them: without documentation to enforce their claims on the state or, alas, to protect themselves from its abuses. India recognises at least 20 proofs of identity, including birth certificates, caste certificates, tax codes, driving-licences and so on, but none universally. Hence a bold scheme to issue a new biometric identity card to the whole 1.2 billion population. It was announced in January, with much focus then on its potential for guarding against illegal immigrants and foreign terrorists, including the Pakistani sort that launched a commando attack on Mumbai in November. But it made bigger headlines on June 25th when Nandan Nilekani, co-founder of Infosys, one of India’s biggest computer-services companies, was appointed—and given ministerial status—to run the scheme. ...

Thailand's lèse majesté law: Treason in cyberspace

Thu, 02 Jul 2009 10:54:22 GMT

The battle over the royal family between government and opposition goes online

ON YOUTUBE, he was “thaiman 8”, a prolific poster of crude videos that mocked Thailand’s royal family. These days Suwicha Thakhor goes by another identity: inmate in Bangkok’s Khlong Prem prison. In April he was sentenced to ten years in jail after pleading guilty to lese majeste, the crime of defaming or threatening the Thai crown. Since 2005 this century-old law has enjoyed a renaissance, netting politicians, scholars, activists and an Australian author. Recently, it seems to have got more coercive.

Daranee Charnchoengsilpakul was arrested in 2008 after a blistering anti-royal public tirade. She went on trial last week and the judge ordered the case to be heard behind closed doors on national-security grounds—a ruling that would conveniently bar the foreign press. Ms Daranee and her lawyer cried foul. An appeal is pending. ...

Japanese politics: A kick up the Aso

Thu, 02 Jul 2009 10:54:22 GMT

The ruling LDP plays a sloppy endgame

PANIC is palpable among legislators of the ruling Liberal Democratic Party (LDP). Japan is on the verge of an historic change of government. A general election for the Diet (parliament) must be called by mid-September, after which power is expected to pass to the decade-old opposition, the Democratic Party of Japan (DPJ), after more than 50 years of almost uninterrupted LDP rule.

But the ruling party is not going gracefully. A gaggle of younger LDP parliamentarians is agitating to bring forward the selection of party president set for September in a clumsy attempt to replace the prime minister, Taro Aso, before the election. In recent days a few party elders have also called for him to step aside. Talk of ousting Mr Aso makes the LDP look desperate: he would be the fourth prime minister to quit in as many years. ...

Malaysia's racial-preference policy: Son versus sons

Thu, 02 Jul 2009 10:54:22 GMT

The prime minister reforms his father’s economic policy

In 1971 Malaysia’s second prime minister, Abdul Razak, began a policy of racial preferences for majority Malays and other “sons of the soil”. The stated goals of the New Economic Policy (NEP) were to cut poverty and redistribute wealth, then largely in the hands of ethnic Chinese and non-Malaysians. On June 30th his son and the current prime minister, Najib Razak, took an axe to some of the privileges laid down by the father. He told foreign investors that Malaysia needed to overhaul its manufacturing-based economy to avoid falling into a “middle-income country trap”. He proposed to reform the requirement that all listed companies must have 30% of their equity in Malay ownership. Limits on foreign stakes in fund management and stockbroking will be relaxed. Red tape will be cut.

For foreign investors, this is all welcome news. It should also help Malaysia’s relations with trading partners such as America and the European Union, which have objected to the race-based rules. But the main audience is Malaysia’s restless voters, who are leaning towards the opposition led by a former deputy prime minister, Anwar Ibrahim. Mr Anwar has vowed to dismantle the NEP, which is deeply unpopular among minority Indians and Chinese. Since the main beneficiaries of stock allocations are often cronies of the government, plenty of ordinary Malays are now also smelling a rat. ...

Banyan: When the catfish stirs

Thu, 02 Jul 2009 10:54:22 GMT

Earthquakes, and the preparations for them, are metaphors for Japan’s malaise

Corrections to this article

A CAPRICIOUS, mythical catfish lies beneath the Japanese archipelago. Usually the Shinto god of the earth keeps the brute’s head pinned down with a granite keystone. But when Kashima drops his guard, the thrashings of the grotesque fish convulse the earth. ...

Indonesia's presidential election: More of the same

Thu, 02 Jul 2009 10:54:22 GMT

The world’s biggest Muslim-majority democracy prepares to go to the polls again

THERE are myriad reasons why Indonesia’s president, Susilo Bambang Yudhoyono (often called SBY), ought to be worried as the days count down to the country’s presidential election on July 8th. Only a quarter of the measures he promised in 2004 to improve the investment climate have been implemented. Desperately needed infrastructure development has been sluggish. Legal and judicial reforms have been patchy. Little progress has been made on improving labour-market regulation. The armed forces are so under-financed that aircraft crashes have become a monthly occurrence.

Meanwhile official poverty and unemployment rates, at 14.2% and 8.2% respectively, are much higher than he promised when he was first elected. Health-service delivery is widely considered woeful. Religious minorities believe they are more fiercely persecuted than five years ago. Then there is the minor matter of the world’s worst recession in decades, which has taken its toll throughout South-East Asia’s export-oriented economies. ...

Brazil’s licensed thinker: A sage exits, maybe left

Thu, 02 Jul 2009 10:54:22 GMT

The government’s in-house philosopher returns to Harvard

ONE of the mysteries of Brazilian politics these days is what the governing Workers’ Party (PT) believes in. It was born in 1980 with an ideology that mixed Marxism and liberation theology and promised nationalisation, land redistribution and debt default. In power under President Luiz Inacio Lula da Silva, it has done none of these things.

Enter into the government, as minister for strategic affairs, two years ago Roberto Mangabeira Unger, a Harvard law professor and philosopher. Mr Unger is not a member of the PT, but he is the author of expansive books with titles like “What Should The Left Propose?” Could he fill the vacuum? ...

Argentina’s mid-term election: Walloped

Thu, 02 Jul 2009 10:54:22 GMT

The Kirchners lose a referendum on their rule

WHEN Argentines last voted in a national election two years ago they chose Cristina Fernandez as their new president with 45% of the vote and no need for a run-off. They gave the political block controlled by her and her husband and predecessor, Nestor Kirchner, healthy majorities in both houses of Congress. In a mid-term election on June 28th not only did the first couple lose those majorities but they also lost the political dominance they have exercised over Argentina since 2003. They show few immediate signs of heeding the demand for change.

In the lower house, where half the seats were in play, the Kirchners’ supporters now have just 115 of the 257 seats. They lost three seats in the Senate, which is now evenly balanced. Across the country, their vote sank to around 30% in an election that Mr Kirchner had framed as a referendum on the first couple’s leftist, populist version of Peronism. He stood himself in Buenos Aires province, where nearly 40% of Argentines live, but came second, beaten by a group of dissident, centrist Peronists headed by Francisco de Narvaez, a wealthy businessman. ...

Conservation in Ecuador: Trees or oil

Thu, 02 Jul 2009 10:54:22 GMT

An ambitious scheme to save pristine forest starts to take shape

THOUGH half of Ecuador lies in the Amazon basin, its rainforest is shrinking faster than in neighbouring countries (by 1.67% a year). It has been ravaged by logging, poachers and oil extraction. Settlers have streamed in to carve out a precarious life. Over the past decade they have been joined by thousands of refugees fleeing violence in Colombia, as well as guerrillas and drug traffickers who inflict it. Native tribes have been uprooted, forced deeper into the forest or have disappeared.

The government of President Rafael Correa now wants help to keep pristine one of Ecuador’s most important remaining jungle areas, in the Yasuni national park. In a corner of the park known as ITT (after the Ishpingo, Tambococha and Tiputini rivers) lies an oilfield which preliminary seismic studies show holds almost 846m barrels of oil, or around 20% of Ecuador’s reserves. The ITT area is unusually biodiverse. It is thought to be home to several hundred tribesmen who shun the modern world and whose way of life is protected under a new constitution promoted by Mr Correa. ...

Mexico’s mid-term election: Tilting to the PRI

Thu, 02 Jul 2009 10:54:22 GMT

Felipe Calderon’s battle for relevance

FOR 70 years the Institutional Revolutionary Party (PRI) was synonymous with the state in Mexico, before it was finally booted out of the presidency in an election in 2000. It has since tried hard to reinvent itself as a competitive political party operating in a democracy. In the campaign for a mid-term election on July 5th involving all 500 seats in the lower house of Congress, PRI candidates across the country have solemnly trooped into public notaries’ offices to turn their campaign promises into formal pledges. These mix opposition to national reforms such as taxing food and medicines with local issues such as paving roads.

The PRI is also touting its experience and a new focus on honesty and accountability. Some Mexicans question how far this goes, since it continues to close ranks around corrupt officials rather than expel them. But after finishing a distant third in a presidential election in 2006, opinion polls now give it a slim but stable lead over the conservative National Action Party (PAN) of President Felipe Calderon. That would translate into a near-doubling of its current 105 seats in the lower house of Congress, and give the party the power to make or break the rest of Mr Calderon’s presidency. It also hopes to make gains in six gubernatorial elections to be held on the same day. ...

Captain Hudson’s journey: Fair to foul and back again

Thu, 02 Jul 2009 10:54:22 GMT

The Hudson River, 400 years on

AS AMERICA celebrates its birthday on July 4th, New York is celebrating the discovery of its Hudson river. The Dutch East India Company hired Henry Hudson, an English explorer, to find a north-west passage to Asia. He failed: the route defied all explorers until Roald Amundsen in 1906. But Hudson’s journey of 1609 up the river that would later bear his name led to a valuable trade in furs and eventually to settlement by the Dutch. His shipmate recorded abundant fish and that the surrounding lands “were as pleasant with Grasse and Flowers, and goodly Trees, as euer they had seene, and very sweet smells came from them.” The smells unfortunately, have not always been so sweet.

The Hudson has been exploited and abused. Factories used the river as a dumping-ground. At one time a 20-mile stretch of the Hudson had little or no aquatic life. “You could tell what colour the GM plant in Sleepy Hollow was painting its cars by the colour of the water,” recalls Alex Matthiessen, president of Riverkeeper, an environmental watchdog. Since the 1960s, groups like Riverkeeper and advocates such as Pete Seeger, a folk singer, have fought to restore the river’s ecosystem. The 1972 Clean Water Act helped deter polluters. And in 1984 the federal Environmental Protection Agency classified 200 miles of the river as a Superfund site, eligible for special attention. As a result of all this the river has begun to look like its old self. Water quality has improved. Some fish populations look healthier. The Bald Eagle once again nests nearby. ...

Iran’s disputed presidential election: A hollow victory

Thu, 02 Jul 2009 10:54:22 GMT

Mahmoud Ahmadinejad keeps power but loses legitimacy, particularly among the middle class

THE case is closed. The landslide claimed by Mahmoud Ahmadinejad in the June 12th presidential election was real, says Iran’s government, and anyone who doesn’t like it can lump it or, indeed, risk going to jail. After weeks of unrest, the state has reasserted its power. Heavy policing has blunted public protests, while a more targeted campaign of arrests, intimidation and controls on communications has hamstrung attempts to organise and sustain opposition. But with accusations of foul play still being voiced, even within the religious establishment that supports the Islamic Republic, Iran’s hardliners will struggle to re-establish legitimacy.

The Guardian Council, an appointed body dominated by clerics allied to Iran’s supreme leader, Ayatollah Ali Khamenei, was in charge of investigating allegations of electoral fraud. Considering that it has a record of barring reformist candidates and that its chairman publicly endorsed the arch-conservative Mr Ahmadinejad before the ballot, the result was preordained: the council announced on June 29th that its researches, including a partial recount, had produced no sign of wrongdoing, so closing the last legal channel to contest the outcome. Pro-regime news outlets even suggested that the revised tally showed gains for Mr Ahmadinejad. The president declared not just a personal triumph but the defeat of an enemy plot to overthrow the regime. ...

State budgets in crisis: Happy new year

Thu, 02 Jul 2009 10:54:22 GMT

The pain of balancing budgets

THE mantra in Washington, DC, is simple: spend billions now, pay later. Congress has been crafting ambitious plans for energy, health care and transport. But the mood in state capitals has been different. Forty-six states had a deadline of June 30th to pass their budgets. Just as important, those budgets had to be balanced. With the sole exemption of Vermont America’s state governments, unlike the federal one, are not allowed to run deficits. For many states June was an agonising month.

Every state but two, commodity-rich North Dakota and Montana, has faced a deficit this year. One legislator in New Jersey described her state as “functionally bankrupt”. More than 5,000 Illinoisans gathered on June 23rd to protest against cuts to social services, with a child placed in a coffin for dramatic effect. In California, which faces a $24 billion gap, Arnold Schwarzenegger, the governor, sent the leader of the state Senate a metallic pair of bull testicles to urge him to cut spending. ...

Russian-American relations: In search of détente, once again

Thu, 02 Jul 2009 10:54:21 GMT

When Barack Obama goes to Moscow, he will find a sulky former superpower that no longer wants to be part of Western clubs

IN 1988, when the Soviet era was drawing to a close, a Russian rock band, Nautilus Pompilius, recorded a “Farewell Letter” that captured Russia’s love affair with America:

As Russia was opening up to the world, it was bidding farewell to America as a dream and a Utopia. ...

Private schools in the recession: Staying on board

Thu, 02 Jul 2009 10:54:21 GMT

In both America and Britain recession has so far done little to dent the demand for private education

“COMPARED with last year, applications are up 14%,” says Mark Stanek, the principal of Ethical Culture Fieldston, a private school in New York. All through the application season he and his board of governors had been on tenterhooks, waiting to see if financial turmoil would cut the number of parents prepared to pay $32,000-34,000 a year to educate a child. Requests for financial help from families already at Fieldston had been rising fast, and the school had scraped together $3m—on top of the $8m it spends on financial aid in a normal year—in the hope of tiding as many over as possible. Nothing is certain until pupils turn up in the autumn. Some parents could get cold feet and sacrifice their deposits. Yet so far the school is more popular than ever.

Across America the picture is patchier, but there is little sign of a recession-induced meltdown in private schooling. Catholic parochial schools and some in rural areas are finding the going harder—but this is merely the acceleration of existing trends. Private schools in big cities with rich residents, and those with famous names and a history of sending graduates to the Ivy League, seem to be doing rather well. “Some parents weighing up their options may be worried about what recession will do to public-school budgets,” says Myra McGovern of the National Association of Independent Schools (NAIS), which represents around 1,400 of the country’s 30,000-odd private schools. “And some may think that if other people are struggling, that will mean their children are more likely to get in.” ...

KAL's cartoon

Thu, 02 Jul 2009 10:54:21 GMT

Buttonwood: Caveat creditor

Thu, 02 Jul 2009 10:54:21 GMT

A new economic era is dawning

SOMETIMES you can have too much news. There was so much financial turmoil in the autumn that it was hard to keep up with events. In retrospect it is clear that a change in the economic backdrop akin to the demise of the Bretton Woods system in the early 1970s has taken place. Investors will be dealing with the aftermath for decades to come.

From the mid-1980s onwards the answer to big financial setbacks appeared to be simple. Central banks would cut interest rates and, eventually, the stockmarket would recover. It worked after Black Monday (the day in October 1987 when the Dow Jones Industrial Average fell by 23%) and the Asian crisis of 1997-98. It did not rescue shares after the dotcom bust but the easing led to the housing boom and the underpricing of risk in credit markets. ...

Appraising the European Central Bank: Hard talk, soft policy

Thu, 02 Jul 2009 10:54:21 GMT

The ECB has run as loose a monetary policy as other central banks have. It is just rather more coy about it

THE global economy has stopped sinking and central bankers are pausing for breath. As The Economist went to press on July 2nd, the European Central Bank (ECB) was expected to keep its main “refi” interest rate unchanged, at 1%. The ECB’s rate-setting council has been chary of cutting rates closer to zero as policymakers elsewhere have done. Its reluctance to do more has attracted criticism, only some of it fair.

The focus on policy rates may put the ECB in a bad light but these are no longer a reliable guide to the overall monetary-policy stance. If you look at market rates the policy stance in the euro area is as loose as anywhere else, because of stimulus decisions taken at the height of the financial crisis. In October the ECB decided it would offer banks as much cash as they wanted, at a fixed interest rate (the refi rate) and against a wider range of security than usual, for up to six months. It also scheduled extra three-month and six-month refinancing operations, so that banks could come more often to the central-bank well. ...

Japanese banking liberalisation: Knocking down the wall

Thu, 02 Jul 2009 10:54:21 GMT

Japan eases the rules for banks and their securities affiliates

REGULATORS around the world are contemplating higher walls between commercial banks and their investment-banking divisions. In Japan the opposite is happening. Last month the country’s Financial Services Agency (FSA) dramatically eased the regulations on how banks may interact with their securities arms, with sweeping implications for Japan’s financial markets.

The old system laid huge burdens on financial groups. It prevented bankers from suggesting services that were provided by the same firm but housed in a different unit. Foreign banks, lacking the same holding-company structures as domestic rivals, were the worst hit. Until recently, grouses an employee of a big bank, its Japanese unit generated more paperwork than the rest of its operations across Asia combined. Domestic firms also suffered. And a system designed to minimise risk increased it, says an executive. “If the country manager asks the head of the securities unit, ‘How’s business?’, he can’t say because he is in a different legal entity.” ...

The rise of dark pools: Attack of the clones

Thu, 02 Jul 2009 10:54:21 GMT

New trading venues offer a challenge to conventional exchanges

THERE is more than a hint of science fiction in the new jargon of finance. Systemic councils are being formed all over the place. America has appointed a “special master” to look at pay practices in bailed-out firms. And in the world of exchanges, “dark pools” are rising fast.

Dark pools are trading venues that match buyers and sellers anonymously. By concealing their identity, as well as the number of shares bought or sold, dark pools help institutional investors avoid price movements as the wider market reacts to their trades. ...

Volatility in interest-rate swaps: Rate expectations

Thu, 02 Jul 2009 10:54:21 GMT

Long-term inflation worries surge

WHEN markets slide investors become uncertain. They seek to buy insurance against the worst that can happen, and that means buying options. An option is a derivative contract that gives the purchaser the right, but not the obligation, to buy or sell an asset at a certain price. Naturally, those that sell options raise their prices in response to higher demand for insurance. This shows up in the “implied volatility” of the option, which indicates how wild investors expect market swings to be.

In the stockmarket, this measure is known as the Vix (short for volatility index) and is a widely watched indicator of confidence. It soared in the wake of the failure of Lehman Brothers last autumn. But it has slowly subsided and is now down to pre-Lehman levels, a sign that investor confidence is returning. ...

Face value: The alternative choice

Thu, 02 Jul 2009 10:54:21 GMT

Steven Chu wants to save the world by transforming its largest industry: energy

WHETHER Steven Chu, America’s energy secretary, would be flattered or horrified by the comparison is unclear, but he and Margaret Thatcher have something important in common. They are both scientists who have risen to political power. That Mr Chu has a Nobel prize for physics, whereas Lady Thatcher swiftly abandoned chemistry for the more lucrative pastures of the law, does not make the comparison unfair. What matters is that both of them understand something that some politicians from softer intellectual backgrounds often seem to forget: you cannot negotiate with nature. Nor can you ignore it, for it will not go away.

Lady Thatcher showed her mettle in this regard in 1989, when she became the first politician of stature to raise the alarm about global warming. When her adviser Crispin Tickell pointed out to her that the level of carbon dioxide in the atmosphere was rising and that carbon dioxide was a greenhouse gas, she got the point instantly and alerted the world in a speech to the United Nations. Mr Chu’s job is harder: he is charged with spotting, nurturing and promoting promising energy technologies, thereby helping America to create the tools that the world needs to wean itself off fossil fuels. ...

Bagehot: The kindness of history

Thu, 02 Jul 2009 10:54:21 GMT

Gordon Brown may be thought of more charitably by posterity than by his contemporaries—if he goes honourably

ANTHONY EDEN equals the Suez crisis; Jim Callaghan connotes the “winter of discontent”: such are the simplifications and cruelties of national memory. Most prime ministers, especially the short-lived kind, are remembered for a single achievement or, more often, for one defining failure. Few now recollect Eden’s general-election win or Callaghan’s proto-modernising; some leaders, such as Alec Douglas-Home, are barely remembered at all. Even those who bestride an epoch are eventually reduced to a couple of salient features. In the end “Tony Blair” will evoke Iraq, maybe with a footnote on his constitutional reforms.

Bagehot mentions this distillatory effect in order tentatively to advance an unfashionable view. It is that, odd as it now seems, history could one day come to regard Gordon Brown as a rather good prime minister, a much better one than he has been reckoned during his tragicomic premiership. At least, history might. Mr Brown may yet blow his chance of retrospective renown. ...

Correction: Jan Fischer and Opel

Thu, 02 Jul 2009 10:54:21 GMT

Because of an editing error, Charlemagne on June 27th referred to the Czech prime minister as Ivan not Jan Fischer; and on June 20th described a bidder for the carmaker Opel as an Austro-Russian not a Canadian-Austrian-Russian consortium. Sorry. These mistakes have been corrected online.

...

Kosovo and media freedom: No criticism, please

Thu, 02 Jul 2009 10:54:21 GMT

Political bigwigs in Kosovo harass its brave free media

EXACTLY 20 years ago Slobodan Milosevic, Serbia’s leader, spoke to Serbs at Gazimestan, the site of the Battle of Kosovo on June 28th 1389. The speech came to be seen as a significant step on the path to war in the former Yugoslavia. This year thousands of Serbs turned up for the battle’s commemoration, including several Serbian ministers. They were escorted by police from Kosovo, which declared independence from Serbia in February last year.

The escort and the arrival of so many Serbs are signs of the times. Serbia continues to reject Kosovo’s independence. The Serb-dominated north of the country is under de facto Serbian control. And yet tensions between Serbs and Kosovo’s ethnic Albanian majority are low. This week most of Kosovo’s Serb policemen, who were pressed by Serbia to resign on independence, returned to work. ...

Albania’s tight election: Close but no government

Thu, 02 Jul 2009 10:54:21 GMT

A draw in Albania means horse-trading and perhaps a new election

FOR months the opinion polls suggested that Albania’s election would be close. Most pundits said they were wrong, because respondents were giving unreliable answers. Now Albanian opinion polling has come of age. So close was the June 28th election that, four days later, the result was still unclear. Albania faces weeks of election challenges and political horse-trading—and perhaps even a fresh election in the autumn.

The poll pitted the prime minister, Sali Berisha, who has dominated Albanian politics ever since 1990, against the mayor of Tirana, Edi Rama. Both Mr Berisha’s centre-right Democratic Party and Mr Rama’s Socialists have alliances with smaller parties. With almost all votes counted, Mr Berisha was claiming 71 seats in the 140-seat parliament, but Mr Rama’s party hotly disputed this. ...

Reforms in Turkey: Marching along

Thu, 02 Jul 2009 10:54:21 GMT

Tension between the army and the government may promote reforms

COULD it be Turkish democracy’s great leap forward? On June 26th Turkey’s parliament, dominated by the Justice and Development (AK) Party, passed a groundbreaking law allowing civilian courts to prosecute army officials. Four days later a civilian prosecutor charged and briefly arrested a serving colonel for his alleged involvement in a plan to overthrow AK.

Colonel Dogan Cicek is at the centre of an alleged conspiracy that has rocked the political establishment since it was exposed by a Turkish newspaper last month. The army has ordered an investigation. But it has just as promptly declared the colonel to be innocent and the document, entitled “The Plan to Combat Islamic Fundamentalism”, a fake. In the old days, the army’s growls would have cowed the civilians into silence. But contrary to speculation that he would retreat, Recep Tayyip Erdogan, the prime minister, appears this time to be holding his ground. ...

Ukraine, Russia and gas: Energetic blackmail

Thu, 02 Jul 2009 10:54:21 GMT

Efforts to extort money to avoid another gas cut-off come to nothing

IN BLACKMAIL timing can be everything. The governments of Russia and Ukraine have cause to ponder this after failing to extract billions of euros from the European Union in the name of keeping Russian gas flowing to Europe next winter.

Thanks to recession and competition from cheaper suppliers, European demand for Russian gas has fallen. It is also summer. So right now governments and gas companies are unusually brave over threats to cut off the gas. They have resisted pressure to give Ukraine a huge loan that both the Russians and Ukraine’s squabbling leaders say is needed to avoid another dispute like the one that blocked Russian gas in January, affecting 18 of the 27 EU countries. Whether Europe’s nerve will hold as winter approaches remains to be seen. Russia supplies 42% of all EU gas imports, and its share is rising. ...

Italy and the G8 summit: A cavalier preparing to host the world

Thu, 02 Jul 2009 10:54:21 GMT

The host of the G8 summit, Silvio Berlusconi, faces many lurid scandals at home. But the biggest should be his refusal to accept the extent of Italy’s economic woes

WHEN the leaders of the world’s largest economies meet on July 8th near the Italian city of L’Aquila for this year’s G8 summit, they will find themselves in an apposite setting. Three months ago L’Aquila was hit by an earthquake that left 300 people dead and much of the city centre in ruins. The area is still experiencing powerful aftershocks: on June 22nd there was yet another one.

It might be imagined that none of the assembled leaders would deny that their economies have also been shaken to their foundations. But one does: the host. Italy’s prime minister, Silvio Berlusconi, has from the outset insisted that in Italy the recession will be neither as severe nor as prolonged as elsewhere. ...

Hip-hop in France: A hip-hop happening they had of it

Thu, 02 Jul 2009 10:54:21 GMT

A new festival marks the maturing of a gritty musical form

SUMMER is the season of arts festivals in France: opera in Aix-en-Provence, theatre in Avignon, jazz in Vienne. But one festival will have the purists frowning into their opera glasses: the Paris Hip-Hop Fortnight, which runs until July 5th. The French are better known for high culture, but the American-inspired street arts of rap, hip-hop and graffiti have become so vibrant in France that even officialdom has taken note.

The Paris Hip-Hop Fortnight is sponsored by the town hall and by the national government. More than 300 artists, from breakdancers to rappers, are taking part, at 18 venues. Highlights have included a concert by IAM, a hip-hop band from Marseilles, and an appearance by Grandmaster Flash, a pioneer of American rap. Even as French hip-hop flourished, official policy treated it as “a fashion, a sport, or an adolescent activity”, as a 2005 report put it. “Now we’re finally getting official recognition,” says Bruno Laforestrie, who runs a hip-hop radio station and is director of the festival. ...

Charlemagne : Those exceptional Swedes

Thu, 02 Jul 2009 10:54:21 GMT

Why Sweden usually makes a good president of the European Union

HERE are three Europeans, talking about the best way to help car workers in the recession. For the first, the state must use “all means necessary” to preserve key industries: ie, give carmakers billions of euros. In return, it is “quite normal” to ask them to halt lay-offs, to keep existing factories open and if possible to “bring production home” from lower-cost countries.

A second European says that governments should focus on ensuring individual workers are employable, not propping up uncompetitive firms. For him, the problem with the car industry lies in “the overproduction of cars that nobody wants to buy.” That leads him to a blunt conclusion: save the workers, not the factories that turn out such clunkers. In his words, “when a ship is sinking my main aim is to save the sailors, not the ship.” ...

World food prices: Whatever happened to the food crisis?

Thu, 02 Jul 2009 10:54:21 GMT

It crept back

MULUALEM TEGEGN bought a donkey last year. As a hard-working Ethiopian farmer, aged 58, he saw the purchase of the beast as a return to better times after several seasons in which drought and high prices had forced him to sell his livestock and take his grandchildren out of school to work on the farm. This year, he will have enough grain left to buy a goat or two, and the donkey will help the children make the long trek again to school. This is how things are supposed to be.

World food prices soared in 2007-08, pushing hundreds of millions into poverty. But—said people at the time—there was a silver lining: high prices would be good for farmers, especially smallholders in poor countries such as Mr Tegegn. Higher returns would suck money into farming, leading to higher yields, bigger harvests and stable or falling food prices. Eventually, the argument ran, farmers and consumers would all be better off. ...

The coup in Honduras: Defying the outside world

Thu, 02 Jul 2009 10:54:21 GMT

Hondurans are pleased that an old-fashioned coup has installed a new president; the rest of Latin America is appalled

HE IS an unlikely figure to have become an international cause celebre. Manuel Zelaya is a moustachioed timber magnate who won Honduras’s presidential election in 2005 as a law-and-order candidate for the mainstream Liberal Party only to alienate most of the country by allying himself with Hugo Chavez, Venezuela’s leftist president. His overthrow in a military coup on June 28th was followed by calls for his restoration of striking unanimity and vehemence, from Barack Obama, Mr Chavez, the Organisation of American States (OAS) and the United Nations General Assembly, among others.

The only people who don’t seem to want the president back in his job are Hondurans. On June 30th thousands of them filled the main square in Tegucigalpa, the capital, to show their support for Mr Zelaya’s removal and his replacement by Roberto Micheletti (pictured above, with microphone), the head of Congress. “We don’t want Mel! Out, Mel!” they screamed, using Mr Zelaya’s nickname. “It was legal! It wasn’t a coup!” The previous day only a few hundred pro-Zelaya protesters had taken to the streets, burning tyres and throwing stones at soldiers before being dispersed with tear gas. ...

A year at the Supreme Court : Fairness for firefighters

Thu, 02 Jul 2009 10:54:21 GMT

The court grapples with baffling racial laws, and much else

THEY celebrated with a Stars-and-Stripes-iced cake. On June 29th the Supreme Court ruled in favour of white and Hispanic firefighters who were discriminated against by the city of New Haven, Connecticut. Six years ago the city put them through an exam to decide whom to promote. When no black scored highly enough, it scrapped the test and promoted no one. The passed-over firefighters sued.

The city said the test must have been unfair. By a 5-4 majority, the Supreme Court disagreed, finding it both fair and relevant. The ruling added a little clarity to America’s incomprehensible racial laws. Employers sometimes face a Catch-22: they are barred from treating employees differently because of their race, but forbidden from treating everyone the same if that has a “disparate impact” on one group. ...

Green spending and stimulus: Curiously slow

Thu, 02 Jul 2009 10:54:21 GMT

The energy secretary continues to show his frustration

THE economy is wobbly, oil prices are rising and voters have climate change on their minds. What better, surely, than a “green stimulus”? Barack Obama duly set aside some $39 billion of February’s $787 billion stimulus bill for the Department of Energy, hoping to create lots of sustainable, high-tech “green jobs”. Steven Chu, the secretary of energy, was in Iowa on June 22nd to announce $16m in spending—soon to grow to $40m—on green fuels and energy efficiency there. “I want to shove this money out the door as quickly as possible,” said the secretary. And well he might. Just $5.8 billion of that $39 billion had been allocated as of June 19th. The department is trying hard to spend the cash faster, and has since then made a flurry of announcements (see article).

Why has spending money proved so hard, when the whole point of the stimulus was to jolt the economy quickly? One problem is structural: the department has historically focused mainly on America’s nuclear-weapons stockpile. The modern role of funding green-energy projects has grown in prominence, but that old priority still sucks up the biggest share of the department’s people and money. ...

A comedian in the Senate: Eight months later

Thu, 02 Jul 2009 10:54:21 GMT

Al Franken prevails at last in Minnesota

ON JUNE 30th, 238 days after the election last November, Minnesota’s Supreme Court ruled unanimously that Al Franken is entitled “to receive the certificate of election as United States Senator from the State of Minnesota”. The margin of victory was just 312 votes, after months of recounts, court hearings and general frustration. Norm Coleman, his Republican opponent, announced that he would not appeal to the United States Supreme Court, which might have dragged things out even longer.

Not everybody in Minnesota has been gripped by the fight. One town was so bored that it planned to choose a winner by staging a race between two piglets named after the candidates. But national Democrats have been waiting breathlessly for the contest to be resolved. When Mr Franken is seated, probably in the week of July 6th, he will become the Senate’s 60th Democrat, giving his party the number it needs to break a Republican filibuster, so long as they all turn up (two of them are seriously ill) and vote as they are told to. ...

Climate change, health care and the budget: A squeaker, with more to come

Thu, 02 Jul 2009 10:54:21 GMT

So many challenges. So little spare cash

HAVING campaigned in poetry, Barack Obama doubtless expected to govern in prose. But it is arithmetic that threatens to cramp his ambitions. Last week, the Congressional Budget Office (CBO) released its long-term budget outlook. If current policies are continued, federal debt held by the public will rise from 41% of GDP at the end of 2008 to 87% by 2020, and (theoretically) to a staggering 716% by 2080.

Meanwhile, Mr Obama is trying to save the planet and reshape America’s health-care system. The first task will be fantastically expensive. The second does not have to be, but probably will be. A president who refused to put off unpleasant decisions, as Mr Obama promised during his inauguration, would be honest about all this. He would tell Americans that stopping global warming means higher energy prices, and that arresting health-care inflation means cutting back on medical procedures that people want but don’t need. ...

Lexington: Two cheers for America

Thu, 02 Jul 2009 10:54:21 GMT

The current Lexington bids farewell to America after 13 years

ALEXIS DE TOCQUEVILLE was so enthralled by the nine months he spent in the United States in 1831 that he wrote two fat volumes about the country. He admired the vigour of its democratic institutions and the entrepreneurial spirit of its people, which was rapidly transforming a vast wilderness into a polished civilisation. And he approved of the way that the country’s potential vices were moderated by its commonplace virtues, particularly its civic pride and religious observance. The proud French aristocrat was happy to call himself “half Yankee”.

But in the 1840s and 1850s de Tocqueville’s views on America took a darker turn, as a new collection of his writings makes clear. (“Tocqueville on America After 1840: Letters and Other Writings”). Public life was dominated by people who lacked “moderation, sometimes probity, above all education”. America’s sense of “exaggerated pride in its strength” was promoting military adventurism. “Primitivism” stalked the land. “What is certain is that, for some years, you have strangely abused the advantages given to you by God,” he chided. ...

America and Russia: Welcome to Moscow

Thu, 02 Jul 2009 10:54:21 GMT

Paranoid, mischievous and heading in the wrong direction, Russia is an awkward prospect for Barack Obama

THE last time Barack Obama was in Russia, he and Senator Dick Lugar were detained by border guards for several hours at an airport in the Urals, where they were looking at how American funds were helping to get rid of stocks of dangerous Soviet-era weapons. America’s president has every reason to hope things will go better this time, but that is not setting a very high hurdle for success. Of all the great power relationships Mr Obama inherited from George Bush, Russia is the most awkward—awkward not only because it has been getting ever harder to deal with but also because it cannot be ignored.

Over the past ten years, under Vladimir Putin’s leadership, Russia has become more nationalistic, corrupt and corporatist. Its economy, although much bigger than a decade ago, is even more dependent on oil and gas, an industry now controlled by a small group of kleptocratic courtiers and former spies. The decision by Ikea, a well-known Swedish furniture supplier once bullish about Russia, to suspend investment because of graft is an indictment of the dire commercial climate (see article). Its non-energy exports are smaller than Sweden’s. ...

The coup in Honduras: Lousy president, terrible precedent

Thu, 02 Jul 2009 10:54:21 GMT

Manuel Zelaya should be restored to power. He should also be forced to respect the constitution

IT WAS a flashback to a nightmare that Latin Americans hoped they had awoken from for good. Heavily armed soldiers burst into the presidential residence in Tegucigalpa, the capital of Honduras, in the early hours, arrested the pyjama-clad president, Manuel Zelaya, and bundled him off to neighbouring Costa Rica. Once all too familiar, such events have become rare in Latin America over the past two decades as democracy has put down roots. It was the first coup in the region since the confused ousting of Jean-Bertrand Aristide in Haiti in 2003, and a brief rising against Venezuela’s Hugo Chavez in 2002.

In Honduras the soldiers acted with the support of the courts and the legislature, whose head, Roberto Micheletti, was sworn in as president to serve out the remainder of Mr Zelaya’s term until January next year (see page 43). Even so, as Barack Obama rightly said, the ousting of Mr Zelaya was “illegal” and set “a terrible precedent”. It was universally and emphatically condemned in Latin America. It is vital for democracy in the region that it should be reversed. ...

Financial reform in the EU: Neither one thing nor the other

Thu, 02 Jul 2009 10:54:21 GMT

Wrongheaded rules for hedge funds and private equity, and an irrelevant plan for banks

MORE Europe or less Europe: that was the choice set out by Adair Turner, the chairman of Britain’s Financial Services Authority, in a discussion of financial reform in March. On the evidence since then, less is just fine. The European Commission has been busy enough, drafting proposals to regulate hedge funds and private-equity firms and to overhaul the continent’s system of supervising cross-border financial institutions (see article). But Europe’s ability to distract itself from the substantive issues far outweighs its capacity to resolve them.

Take that draft directive on hedge funds and private equity, a ragbag of measures requiring more disclosure, greater controls over leverage and tighter restrictions on non-EU funds. Some of these ideas make sense: more disclosure will help regulators to monitor the systemic risks that may be building outside the banks. But the poorly drafted proposal lumps different types of manager together. Controls on liquidity make much more sense for hedge funds than they do for private equity, for instance; the reverse could be argued for leverage limits. ...

Education in America and Britain: Learning lessons from private schools

Thu, 02 Jul 2009 10:54:21 GMT

The right and wrong ways to get more poor youngsters into the world’s great universities

LOTS of rich people and crummy state schools, especially in the big cities where well-off folk tend to live: these common features of America and Britain help explain the prominence in both countries of an elite tier of private schools. Mostly old, some with fat endowments, places like Eton, Harrow and Phillips Exeter have done extraordinarily well. Fees at independent schools have doubled in real terms over the past 25 years and waiting lists have lengthened. Even in the recession, they are proving surprisingly resilient (see article). A few parents are pulling out, but most are soldiering on and plenty more are clamouring to get their children in.

All sorts of class-based conspiracy theories exist to explain the success of such institutions, but the main reason why they thrive in a more meritocratic world is something much more pragmatic: their ability to get people into elite universities. For Britain and America also have the world’s best universities. Look at any of the global rankings and not only do the Ivy League and Oxbridge monopolise the top of the tree, British and (especially) American colleges dominate most of the leading 100 places. This summer graduates will struggle to find jobs, so a degree from a world-famous name like Berkeley or the London School of Economics will be even more valuable than usual. The main asset of the private schools is their reputation for getting children into those good universities. ...

The relaunch of Gordon Brown: The vision thing

Thu, 02 Jul 2009 10:54:21 GMT

The prime minister’s Big Idea for Britain is a day late and a dollar short

IN OCTOBER 2007 Gordon Brown decided against a snap election, ostensibly in order to lay his vision for Britain before the electorate in a more leisurely manner. Several bank bail-outs and one economic crisis later, the vision has landed. With its wan echo of New Labour reforming themes, the grab-bag of policies the prime minister portentously entitled “Building Britain’s Future” is not up to much (see article). Far worse, in letting it be understood at the same time that there may not be a comprehensive spending review—a detailed analysis of future spending by department—in the coming year, Mr Brown has ducked the policy debate that really does matter: how to begin putting Britain’s fiscal house in order.

Over the past few weeks, with troublesome elections for local government and the European Parliament out of the way, Britain’s main parties have been squaring up for the next general election, which must be held by June 2010. The dividing lines are being sharply drawn. ...

Russia's intelligentsia under communism: Yearning to be free

Thu, 02 Jul 2009 10:54:21 GMT

A look back at Russia's “silver age”

Zhivago's Children: The Last Russian Intelligentsia. By Vladislav Zubok. Harvard University Press/Belknap; 464 pages; $35 and GBP25.95. Buy from Amazon.com, Amazon.co.uk

THE Soviet Union was a prison, especially for the lively minded, whose travel abroad and activities at home were dictated by the Communist Party’s cultural commissars. But in the period between the end of the Stalin terror and the start of the Brezhnev era’s grim stagnation, a lucky few enjoyed some wisps of freedom. ...

James Ensor at the Museum of Modern Art: Masked ball

Thu, 02 Jul 2009 10:54:21 GMT

A Belgian master finally gets the recognition he deserves

JAMES ENSOR seems to have slipped between the cracks. An innovative Belgian artist who was influential in shaping expressionism and surrealism, he is often overlooked. This is especially true in America, where his work is thinly scattered across a number of museums and largely ignored.

Ensor’s renown may be about to change. The artist’s first big American show for 30 years, at the Museum of Modern Art (MoMA), is intended to reassert his place in the canon. But just where he belongs remains a mystery. The works on view, which range from cartoonish drawings of religious scenes to bright little paintings of fighting skeletons, reveal that, if nothing else, Ensor was certainly something of an oddball. “He is very slippery,” explains Anna Swinbourne, who organised the exhibition and edited the catalogue. “Was he a forbear of expressive use of colour? Of modern caricature? The more you research, the less you know.” ...

Early British tourists: The rosbifs arrive

Thu, 02 Jul 2009 10:54:21 GMT

How the British discovered Europe

The Smell of the Continent: The British Discover Europe. By Richard Mullen and James Munson. Macmillan; 368 pages; GBP20. Buy from Amazon.co.uk

“TRAVELLING is a very troublesome business,” advised Charles Dickens’s Household Words magazine in 1852. According to the accounts drawn from letters, diaries and public sources in this compendium of facts, figures and travellers’ tales from the 19th century, he was right. What with the lack of cutlery, clean sheets, hot water for tea and baths, the constant threat of arrest, assault or robbery, the menacing presence of mustachioed foreigners and the state of the lavatories, it is surprising that the British ever embarked on foreign travel at all. ...

Raising goats: Nanny diaries

Thu, 02 Jul 2009 10:54:21 GMT

A paean to the raising of goats

Goat Song: A Seasonal Life, A Short History of Herding and the Art of Making Cheese. By Brad Kessler. Scribner; 256 pages; $24. Buy from Amazon.com

“EVERY raw-milk cheese is an artefact of the land. It carries the imprint of the earth from which it came. It’s a living piece of geography. A sense of place.” So says Brad Kessler in this meditation on the origins of pastoralism and the joy of making a living from livestock. ...

Barack Obama's presidential campaign: Man of the moment

Thu, 02 Jul 2009 10:54:21 GMT

A disappointingly sycophantic portrayal of the new president

Renegade: The Making of a President. By Richard Wolffe. Crown; 368 pages; $26. To be published in Britain by Virgin Books in August. Buy from Amazon.com

THE great occupational hazard for any biographer is falling too much under the sway of his or her subject, becoming at best a biased observer, and at worst a propagandist. When the subject is alive, the hazard is greater. When the subject is the intelligent, charming and history-making Barack Obama, the hazard is obviously greater still. Unfortunately, Richard Wolffe has fallen right into the trap. ...

Chinese aid to Africa: Spreading its bets, and its gold

Thu, 02 Jul 2009 10:54:20 GMT

Beijing finds new friends in Zimbabwe

CHINA has had friendly ties with Robert Mugabe, Zimbabwe’s president, since his days as a Maoist guerrilla leader fighting white rule in the 1970s. Decades later, as he suppressed the opposition and ruined his country, China helped to protect him from sanctions at the United Nations, sold him weapons and even built his palace. But its favour, never unconditional, seems to be shifting.

On June 30th it was Mr Mugabe’s biggest foe, Morgan Tsvangirai—with whom he has awkwardly shared power in a unity government since February—who announced that China had offered Zimbabwe $950m in loans. This is well in excess of the nearly $500m Mr Tsvangirai said he had obtained in pledges of various kinds during a tour of Western capitals. ...

Meeting Somalia’s Shabab: The next jihad

Thu, 02 Jul 2009 10:54:20 GMT

Fear and beheadings in the heartland of the militants

THE Juba river region, in Somalia, is hard country. Women are regularly eaten by crocodiles while fetching dirty water. The sandy farmland is either in drought or flooded. And the militants known as the Shabab, who rule the area, exact brutal justice. Your correspondent had to turn back from the town of Wajid (see map) this week because, within, a man was being beheaded. A day later, a clan leader was shot dead. As The Economist went to press, three more were to be beheaded in Wajid, and two more had suffered the same fate in a nearby village.

All were suspected of being “collaborators” with the internationally recognised, but largely powerless, transition government in Mogadishu that is protected by a small African peacekeeping force. It is led by Sharif Ahmed, a moderate Islamist, who once headed the Islamic Courts Union. This had imposed a tenuous calm in the city, but was swept from power by Ethiopian forces in 2006 because its erstwhile allies in the Shabab, or “Youth”, had ties with al-Qaeda. If anything, the intervention strengthened the Shabab and hardened their link with global jihadism—not least because of an influx of foreign fighters who see Somalia as the next battleground for holy war. ...

Royalist politics in Morocco: The king’s friend

Thu, 02 Jul 2009 10:54:20 GMT

A new leader emerges, but how credible will he be?

A NEW political force is emerging in Moroccan politics. The Authenticity and Modernity Party, known by its French acronym, PAM, with a centrist non-ideological platform open to all comers, has been in existence for less than a year. Yet it already seems destined to win the general election in 2012. In its electoral debut in last month’s municipal poll, PAM won the ballot with 22% of the vote. Yet for all its success, the ascent towards the prime ministership of its founder, Fouad Ali El Himma (pictured), is the chronicle of a political elevation foretold.

In 2007 Mr El Himma resigned from his job as deputy interior minister and announced his intention to run as an independent in the parliamentary election that year. Where a few saw a fall from royal grace— he was known to be a close political adviser to King Muhammad VI—others sensed the beginning of a reconfiguration of monarchist parties. ...

Fighting AIDS in Sudan: Imams, tea ladies and condoms

Thu, 02 Jul 2009 10:54:20 GMT

A killer of another sort stalks one of Africa’s most conflict-riven countries

FOR six years, Najun Eldin Muhammad Ahmed has been living with HIV. But he is an unusual man. In the pious and conservative Muslim north of Sudan, he not only admits it, but campaigns actively to raise awareness of the virus. He has corralled 42 fellow sufferers in Port Sudan, on the Red Sea, to form one of the country’s most active AIDS-support groups. Mr Ahmed willingly concedes that his group represents only a tiny fraction of those infected with HIV, the AIDS-causing virus, in a city of almost half a million people.

On top of Sudan’s myriad other problems, such as the bloody war in Darfur, the country also has a full-blown epidemic of HIV on its hands. Reliable figures on any subject are hard to come by in Sudan, let alone one as sensitive as this. Nonetheless, enough research has been done to confirm some of the worst fears about the spread of HIV in the country. The last big study in 2003 revealed a prevalence rate of 1.6%, but experts say that is probably now approaching 3%. The rate in neighbouring Egypt, by contrast, is just 0.1%; anything over 1% is counted by the World Health Organisation as an epidemic. ...

Politics this week

Thu, 02 Jul 2009 10:54:20 GMT

There was a military coup in Honduras after Manuel Zelaya, the leftist president, tried to organise an unconstitutional referendum to allow him to stand for a second term. He was arrested and deported by the army, which acted with the support of Congress and the Supreme Court. The head of Congress was sworn in as president, pending an election in November. The Organisation of American States, the United States and the European Union all condemned the coup and called for Mr Zelaya’s reinstatement. See article

Argentina’s first couple, President Cristina Fernandez and her husband and predecessor, Nestor Kirchner, fared badly in a mid-term legislative election, losing their majority in Congress. Several centrist leaders did well in a repudiation of the Kirchners’ populist economic policies. Mr Kirchner resigned as leader of the ruling Peronist movement. Once the election was over, authorities in several provinces declared health emergencies as deaths from swine flu rose to 35. See article ...

Business this week

Thu, 02 Jul 2009 10:54:20 GMT

Bernard Madoff was sentenced by a judge in Manhattan to 150 years in prison, the maximum term allowed, for operating a $65 billion Ponzi scheme. He had pleaded guilty to possibly the biggest fraud in history. For many years Mr Madoff, a former chairman of the NASDAQ stockmarket, assured his clients that their money was safe with him. He did not receive a single letter of support at his sentencing hearing. See article

A judge in Houston decided that Sir Allen Stanford should remain in jail until the start of his trial for allegedly swindling investors. Prosecutors said there was a significant chance he might abscond if granted bail. The tycoon and former cricket impresario has a passport issued by Antigua, where the banking operations at the centre of the case are based. ...

Michael Jackson

Thu, 02 Jul 2009 10:54:20 GMT

Michael Jackson, pop star, died on June 25th, aged 50

FIRST, the songs. The light, infectious lilt of “Don’t Stop Til You Get Enough”. The sheer, vicious swoop of “Speed Demon”. The soft, syncopated sadness of “Billie Jean”, or the raucous shouts of “Bad”. His high, pure tenor was shot through with the little yips and sighs he had learnt from Diana Ross. And behind it lay the astonishing confidence of child-star Michael in “I’ll Be There” or “Rockin’ Robin”, with each note treble-true and each time-change as natural as taking breath.

Next, the dancing, springing from the music like a bird out of a trap. Pointing, jerking, thrusting, with rage in his feet, as Fred Astaire said once. He was at war with the floor as it slid away in the Moonwalk, and with the air as he spun through it. He danced with his knees, on tiptoe, hunching his shoulders to his ears. His splayed hand pulled at his crotch as if emasculation would be sweet to him. ...

New materials for renewable energy: The power of being made very small

Thu, 02 Jul 2009 10:54:20 GMT

Nano-engineering can produce substances with unique properties that will give renewable energy a boost

BIG improvements in the production of energy, especially from renewable sources, are expected over the coming years. Safer nuclear-power stations, highly efficient solar cells and the ability to extract more energy from the wind and the sea are among the things promised. But important breakthroughs will be needed for these advances to happen, mostly because they require extraordinary new materials.

The way researchers will construct these materials is now becoming clear. They will engineer them at the nanoscale, where things are measured in billionths of a metre. At such a small size materials can have unique properties. And sometimes these properties can be used to provide desirable features, especially when substances are formed into a composite structure that combines a number of abilities. A series of recent developments shows how great that potential might be. ...

A new way to keep hydrogen: Plumage power

Thu, 02 Jul 2009 10:54:20 GMT

Chicken feathers could provide a high-capacity store

HYDROGEN has long been touted as the future of energy. It is clean, efficient and the most abundant substance in the universe. It can be used to run an internal combustion engine in a car or power one using a fuel cell, with heat and water as the only emissions. But hydrogen is difficult to store because it is the lightest element. Filling a typical fuel tank of 75 litres—about 20 American gallons—with hydrogen at room temperature and pressure will take a hydrogen-powered car only about a kilometre or so. The gas can be compressed to take up less space, but that can be dangerous. It also uses energy, which removes some of the benefits.

Another way to store hydrogen is to put something inside the tank which increases the total internal surface area to which the molecules of the gas can cling. This means more hydrogen can then be packed into a smaller volume. There has been some progress with materials that can do this, including specially engineered carbon nanotubes. But carbon nanotubes are very expensive to make, especially in large quantities. Richard Wool, a chemical engineer at the University of Delaware, estimates the cost of fitting a single car with a tank full of carbon nanotubes to be $5.5m. Other materials might do, but they could still end up costing over $20,000 a car. ...

On schooling, Christina Romer, ethics, Brazil, Cambodia, Chevron, asylum seekers, pay, verbs

Thu, 02 Jul 2009 10:54:20 GMT

SIR – Before Lexington disparages American children for their comparatively short school day he should take a closer look at the arguments (June 13th). First of all, international education surveys regularly compare the children of the elite in the developing world, such as China and India, with the mass of children in developed countries. We should compare like with like before moving to generalisations. Second, children in the upper socioeconomic classes in America regularly attend extra-curricular activities—art, sport, extra maths—that extend their day. This way I get to tailor my children’s education rather than have them sit bored in a classroom for up to nine hours.

Third, rote learning does not equal intelligence and memorisation does not equal learning. Finally, studies show that grades and SAT scores are not always a predictor of career success. ...

Award: Bill Emmott

Thu, 02 Jul 2009 10:54:20 GMT

Bill Emmott, our editor from 1993 to 2006, received a lifetime achievement award at the 2009 Loeb Awards for business and financial journalism in New York on June 29th.

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