The Economist (April 6th 2019)

79 Pages·2019·4.75 MB·English

by  The Economist

The new era of corporate scandal
Algeria kicks out its dictator
Why Europe’s banks are so rotten
Great wheels of China
APRIL 6TH–12TH 2019
Redesigning life
The promise of synthetic biology
The Economist April 6th 2019 3
Contents
The world this week United States
8 A round-up of political 21 Death by air strike
and business news 22 Gay mayors
23 Melanin and money
Leaders
24 Southern history
11 Synthetic biology
25 New York’s traffic
Redesigning life
25 New Hampshire
12 The Brexit negotiations
A step in the right 26 Happiness and voting
direction
12 Algeria The Americas
So begins the real battle 27 Trump stops aid to
13 European banks Central America
The land of the living dead 28 Unseating Nicolás Maduro
On the cover
14 Welfare in India 29 Bello Blaming the
The promise and perils of The beauty of breadth conquistadors
synthetic biology: leader,
page 11. The engineering of
Letters
living organisms is not yet
16 On mental health, social Asia
changing everything. But in
time it will. See Technology media, Africa, Brexit, 30 Fighting poverty in India
champagne
Quarterly, after page 40 31 Banyan China’s and
India’s hubris
• The new era of corporate Briefing
scandal Boeing, Goldman 32 Indonesia’s would-be
Sachs, Facebook. A rash of 18 Chinese mobility president
Great wheels of China
accidents and misconduct 32 Regulating social media
claims suggest that standards 33 Barbarity in Brunei
have slipped at America Inc. Technology Quarterly:
Time for a reset, page 51 Synthetic biology 33 Guns in New Zealand
A whole new world 34 German-Koreans
• Algeria kicks out its dictator
After page 40
The resignation of President China
Abdelaziz Bouteflika is a good
35 Fugitives in Hong Kong
start. Now overhaul the system
that kept him in power: leader, 36 An aviation colossus
page 12. His regime falls to
in-fighting, page 37
• Why Europe’s banks are so
rotten The continent’s lenders
try to claw their way back to
financial respectability. Good Middle East & Africa
luck, page 59. Zombie banks 37 Bye-bye, Bouteflika
need to rediscover their lust for
38 Arabs welcoming Jews
life: leader, page 13
39 Gender in Iran
• Great wheels of China
40 Uganda waits for its oil
A long-held ambition to dominate
the global car industry will make Bagehot The 40 African political slang
China a force in the future of Conservative Party has
personal transport: briefing, transformed into a party
page 18 of populist nationalism,
page 48
1 Contents continues overleaf
4 Contents The Economist April 6th 2019
Europe Finance & economics
41 Turkey’s voters take a 59 Europe’s dud banks
swipe at the president
60 Buttonwood Oil futures
42 Ukraine’s election
61 Corporate concentration
43 Spain’s depopulating
62 US-China trade talks
centre
62 The wrecking of Islami
43 Summer time
Bank
44 Russia’s climate of fear
63 Inequality and welfare
45 Charlemagne Political
63 Manufacturing v services
migration
64 Self-help lending in
Ethiopia
Britain
66 Free exchange
46 Brexit and Parliament
Complexity economics
47 Northern Ireland’s prisons
48 Bagehot The Tories and Science & technology
populist nationalism
67 Hypersonic missiles
69 Monitored hearts
69 Parliamentary acoustics
70 Dino devastation
International
49 Moving civil servants out
of national capitals
Books & arts
71 Jewish-American culture
72 Glenda Jackson’s King Lear
73 A story of cherry blossom
73 The virtues of walking
Business
74 Climate change in fiction
51 Corporate crises
52 Bartleby The loan
arrangers
Economic & financial indicators
53 Facebook’s regulatory
76 Statistics on 42 economies
gambit
54 Cannabis in China Graphic detail
54 Saudi Aramco’s finances 77 Our statistical golf model’s Masters predictions
55 Video-streaming in India
Obituary
55 Digital books
78 Agnès Varda, chronicler of the overlooked
56 Schumpeter The ethics
of business in China
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8 The Economist April 6th 2019
The world this week Politics
ing. Dozens of people have A bill was introduced to Hong
been killed in the past two A return to the dark ages Kong’s legislature that would
weeks, during Iran’s worst Harsh new penalties came into allow the extradition of crimi-
rains in years. Iranian officials force under Brunei’s Islamic nal suspects to mainland
blamed American sanctions criminal code. Anal sex and sex China. Thousands of people
for impeding their aid efforts. outside marriage (including marched against it, saying it
American officials said Iran gay sex) can earn death by could be used as a pretext to
was mismanaging the crisis. stoning. Thieves risk the hand over people who are
amputation of a hand or foot. wanted for political reasons.
Thousands of Palestinians
marked the first anniversary of Australia approved a new law China declared that all types of
an uprising along the Israel- imposing severe penalties on fentanyl would be treated as
After 20 years in power and Gaza border. Scores of activ- social-media firms that fail to controlled drugs. America had
weeks of mass protests, ists approached the perimeter remove footage of crimes such appealed to China to adopt
Abdelaziz Bouteflika, Algeria’s fence, throwing stones and as murder and rape. Singapore tougher controls.
ailing president, resigned. The explosives at the Israeli side. proposed a new law that would
announcement sparked cele- Four Palestinians were killed allow similarly harsh punish-
brations in the capital, Algiers. by Israeli soldiers. A broader ments for those disseminating Mulling Mueller
Some fear that the old guard ceasefire deal between Israel fake news. America’s attorney-general,
will try to hang on to power. and Hamas, which rules Gaza, William Barr, promised to
Abdelkader Bensalah, the appeared to be holding. Activists in Thailand ques- provide a redacted version of
Speaker of the Senate (and a tioned the opaque conduct of the Mueller report to Congress
Bouteflika loyalist), is next in The number of cholera cases in the Election Commission, by the middle of April. That
line as president, according to Mozambique rose sharply in which has not yet announced was not enough for the Demo-
the constitution. He has 90 areas affected by Cyclone Idai. the results of last month’s crats running the House Judi-
days to organise new elections. Over 1,400 people have been election. In response, the head ciary Committee, who autho-
infected, up from the 249 cases of the military junta, which is rised (though did not issue) a
The Iranian government reported recently. Many of the supposedly soon to give way to subpoena to attain Mr
ordered the evacuation of more affected areas still cannot be civilian government, Mueller’s full, unredacted
than 70 villages in the province reached by road, complicating denounced the “incorrect report into Russian interfer-
of Khuzestan because of flood- a mass vaccination campaign. thinking” on social media. ence in American politics. 1
The Economist April 6th 2019 The world this week 9
stop migrants from leaving Wilson-Raybould and Jane A political novice, Zuzana
their countries and trying to Philpott could no longer be Caputova, handily won in the
get into America. Migration part of a team in which they second round of Slovakia’s
from the poor, violent North- had no trust. Ms Wilson-Ray- presidential election. It has
ern Triangle has recently bould has alleged that the been a bad week for Europe’s
surged on the Mexican border. prime minister’s office had incumbents.
pressed her when she was
Venezuela’s constituent as- attorney-general to drop the Britain’s Parliament was at an
sembly stripped the opposi- prosecution for corruption of a impasse over Brexit. Theresa
tion’s leader, Juan Guaidó, of big engineering firm. Ms Phil- May’s withdrawal agreement
his immunity from prosecu- pott quit saying the “indepen- with the eu was rejected again,
tion. More than 54 countries dence and integrity of our as were alternatives to her
2 Lori Lightfoot won a run-off acknowledge Mr Guaidó, who justice system” is at stake. plan. The prime minister held
election to become Chicago’s leads the opposition-con- talks with the opposition in an
mayor, and will be the first trolled national assembly, as effort to break the deadlock.
black woman and gay person to Venezuela’s interim president. Walls come tumbling down mps voted to ask for an exten-
hold the office. Ms Lightfoot Volodymyr Zelensky, a tv sion, by one vote. European
trounced Toni Preckwinkle, a Brazil’s right-wing president, comedian, won the first round politicians looked on aghast,
mainstay of the city’s estab- Jair Bolsonaro, ordered the of Ukraine’s presidential as they pondered whether to
lishment. Her victory could armed forces to “commem- election, beating more than 30 give Britain more time.
herald a change in Chicago’s orate” a military coup that took rivals. He will now face the
machine politics. place in 1964. Soldiers marched incumbent, Petro Poroshenko, Police in Britain reported that
at their barracks in honour of in a second round on April 21st. two devices planted on rail
the occasion, but thousands of tracks to cause disruption were
Making the poor even poorer people protested. Local elections in Turkey related to Brexit, as one had a
Donald Trump suspended delivered a humiliating blow note attached threatening to
$500m in aid to three Central Canada’s prime minister, to the president, Recep Tayyip bring the country to “its knees
American countries: El Salva- Justin Trudeau, expelled two Erdogan. He lost in five of if we don’t leave”. The trouble-
dor, Guatemala and Honduras. former cabinet ministers from Turkey’s six biggest cities, maker’s plans were derailed
He complained that they were the parliamentary caucus of including Istanbul and Ankara, because of eu safety regu-
doing “absolutely nothing” to his Liberal Party. He said Jody the capital. lations to detect sabotage.
10 The Economist April 6th 2019
The world this week Business
In a prospectus published under investigation. Britain’s at the bank. Wells Fargo wants meat by using heme, an iron-
ahead of a huge bond sale, information commissioner to replace him with someone rich protein, extracted from
Saudi Aramco revealed for the wondered if Facebook would from outside the firm. soyabean roots and mixed with
first time how much money it now drop its appeal against the other vegetable ingredients.
makes. Saudi Arabia’s state oil fine it received for the The ihs Markit British manu-
firm reaped $356bn in Cambridge Analytica scandal. facturing index for March
revenues last year. Annual net recorded by far the biggest The right beat
Global recorded-music sales, $bn
profit came to $111bn, almost jump in firms’ inventories over
Streaming Physical
twice that of Apple, the world’s Lyft’s ups and downs the survey’s 27 years, as compa- Digital Other
most valuable listed company. Following a successful ipo, nies stockpiled goods and 20
The prospectus also confirmed Lyft’s stock pared back some of components ahead of Brexit. 15
how important Saudi Aramco its gains, falling below the 10
is to the country’s economy. Oil offer price of $72 a share. The India’s Supreme Court ruled 5
accounted for 63% of the state’s price had closed up 9% on the that the Reserve Bank of India 0
revenue in 2017 and 43% of the first day of trading, giving the had overstepped its mark when
2014 15 16 17 18
kingdom’s gdp. ride-hailing company a market directing banks to declare a
Source: IFPI
capitalisation of $22bn. default when a company defers
Saudi Arabia’s cut in oil output loan payments, and force the Global recorded-music sales
has helped drive up the com- Carlos Ghosn announced a company into bankruptcy if it grew by nearly 10% last year,
modity’s price in recent forthcoming press conference does not resolve its debt posi- according to the International
months. Brent crude traded “to tell the truth”, presumably tion within 180 days. The court Federation of the Phonograph-
around $70 a barrel this week, about the charges he faces for found that the central bank ic Industry. Although revenues
the highest level this year. financial misconduct at Nis- could intervene on individual from digital downloads have
san. He was rearrested soon corporate defaults but could fallen even faster than those
The World Trade Organisation after in Tokyo on a new in- not undertake such a sweeping from physical forms of music,
released an estimate for global dictment and is expected to action. It is a big blow to the such as vinyl albums, over the
trade in 2018, which grew by spend at least three weeks in rbi’s effort to rein in India’s past five years, streamed music
3%, well below the 3.9% that jail. Mr Ghosn described this corporate debt. has surged. Nearly half of
the wto had forecast in Sep- latest move by prosecutors as global sales now come from
tember. It expects the growth “outrageous and arbitrary”. streaming, reversing an in-
in trade to fall to 2.6% this year. This year’s flavour dustry decline since 2001 that
The organisation blamed Wells Fargo started the search Burger King started selling a hit a trough in 2014. Music
tariffs and related retaliatory for a new chief executive, after plant-based version of the sales are still performing
measures, but also weaker the abrupt resignation of Tim Whopper. The veggie burger, worse, however, than in the
economic growth, volatile Sloan. Mr Sloan gave what being rolled out at its stores in early noughties. The top three
markets and tighter monetary many considered to be a poor St Louis, is made by Impossible global music acts last year were
policy in developed countries. performance in front of a Foods, a Silicon Valley startup Drake, bts (a South Korean boy
It warned governments that it congressional panel recently, that is at the forefront of the band) and Ed Sheeran. Queen
would be a “historic mistake” when he was hauled in to flowering plant-based foods were the sixth-bestselling act,
to forget the “fundamental explain what was described as industry. The Impossible boosted by the film “Bohemian
importance” of the rules-based a “pattern of consumer abuses” Whopper imitates the taste of Rhapsody”.
trade system.
A preliminary report from
Ethiopia’s transport ministry
into last month’s fatal crash of
a Boeing 737max 8 passenger
plane found that the pilots
followed the procedures issued
by the manufacturer when the
jet started nosediving. The
report recommended that
Boeing change the max’s flight-
control system.
Mark Zuckerberg’s apparent
change of heart in calling for
more regulation of the tech
giants got short shrift. Face-
book’s boss said governments
should take a more active role
in policing the internet in
areas such as privacy and
elections material. But one
leading Democrat tweeted,
“Does anyone even want his
advice?” given that Facebook is
Leaders 11
Leaders
Redesigning life
The promise and perils of synthetic biology
or the past four billion years or so the only way for life on such laudable environmental goals will take public policy as
FEarth to produce a sequence of dna—a gene—was by copying well as the cues of the market.
a sequence it already had to hand. Sometimes the gene would be The second example of biological change sweeping the world
damaged or scrambled, the copying imperfect or undertaken re- is the Columbian exchange, in which the 16th century’s newly
peatedly. From that raw material arose the glories of natural se- global network of trade shuffled together the creatures of the
lection. But beneath it all, gene begat gene. New World and the Old. Horses, cattle and cotton were intro-
That is no longer true. Now genes can be written from scratch duced to the Americas; maize, potatoes, chilli and tobacco to Eu-
and edited repeatedly, like text in a word processor. The ability to rope, Africa and Asia. The ecosystems in which humans live be-
engineer living things which this provides represents a funda- came globalised as never before, providing more productive
mental change in the way humans interact with the planet’s life. agriculture all round, richer diets for many. But there were also
It permits the manufacture of all manner of things which used to disastrous consequences. Measles, smallpox and other patho-
be hard, even impossible, to make: pharmaceuticals, fuels, fab- gens ran through the New World like a forest fire, claiming tens
rics, foods and fragrances can all be built molecule by molecule. of millions of lives. The Europeans weaponised this catastrophe,
What cells do and what they can become is engineerable, too. Im- conquering lands depleted and disordered by disease.
mune cells can be told to follow doctors’ orders; stem cells better Synthetic biology could create such weapons by design:
coaxed to turn into new tissues; fertilised eggs programmed to pathogens designed to weaken, to incapacitate or to kill, and per-
grow into creatures quite unlike their parents. haps also to limit themselves to particular types of target. There
The earliest stages of such “synthetic biology” are already is real cause for concern here—but not for immediate alarm. For
changing many industrial processes, transforming medicine such weaponisation would, like the rest of cutting-edge synthet-
and beginning to reach into the consumer world (see Technology ic biology, take highly skilled teams with significant resources.
Quarterly). Progress may be slow, but with the help of new tools And armies already have lots of ways to flatten cities and kill peo-
and a big dollop of machine learning, biological manufacturing ple in large numbers. When it comes to mass destruction, a dis-
could eventually yield truly cornucopian technologies. Build- ease is a poor substitute for a nuke. What’s more, today’s synthet-
ings may be grown from synthetic wood or cor- ic-biology community lives up to ideals of
al. Mammoths produced from engineered ele- openness and public service better than many
phant cells may yet stride across Siberia. older fields. Maintained and nurtured, that cul-
The scale of the potential changes seems ture should serve as a powerful immune system
hard to imagine. But look back through history, against rogue elements.
and humanity’s relations with the living world The earliest biological transformation—do-
have seen three great transformations: the ex- mestication—produced what was hitherto the
ploitation of fossil fuels, the globalisation of the biggest change in how humans lived their lives.
world’s ecosystems after the European conquest Haphazardly, then purposefully, humans bred
of the Americas, and the domestication of crops and animals at cereals to be more bountiful, livestock to be more docile, dogs
the dawn of agriculture. All brought prosperity and progress, but more obedient and cats more companionable (the last a partial
with damaging side-effects. Synthetic biology promises similar success, at best). This allowed new densities of settlement and
transformation. To harness the promise and minimise the peril, new forms of social organisation: the market, the city, the state.
it pays to learn the lessons of the past. Humans domesticated themselves as well as their crops and ani-
mals, creating space for the drudgery of subsistence agriculture
The new biology calls all in doubt and oppressive political hierarchies.
Start with the most recent of these previous shifts. Fossil fuels Synthetic biology will have a similar cascading effect, trans-
have enabled humans to drive remarkable economic expansion forming humans’ relationships with each other and, potentially,
in the present using biological productivity from ages past, their own biological nature. The ability to reprogram the embryo
stored away in coal and oil. But much wilderness has been lost, is, rightly, the site of most of today’s ethical concerns. In future,
and carbon atoms which last saw the atmosphere hundreds of they may extend further; what should one make of people with
millions of years ago have strengthened the planet’s greenhouse the upper-body strength of gorillas, or minds impervious to sor-
effect to a degree that may prove catastrophic. Here, synthetic bi- row? How humans may choose to change themselves biological-
ology can do good. It is already being used to replace some pro- ly is hard to say; that some choices will be controversial is not.
ducts made from petrochemicals; in time it could replace some Which leads to the main way in which this transformation
fuels, too. This week Burger King introduced into some of its res- differs from the three that came before. Their significance was
taurants a beefless Whopper that gets its meatiness from an en- discovered only in retrospect. This time, there will be foresight.
gineered plant protein; such innovations could greatly ease a It will not be perfect: there will certainly be unanticipated ef-
shift to less environmentally taxing diets. They could also be fects. But synthetic biology will be driven by the pursuit of goals,
used to do more with less. Plants and their soil microbes could both anticipated and desired. It will challenge the human capa-
produce their own fertilisers and pesticides, ruminants less city for wisdom and foresight. It might defeat it. But carefully
greenhouse gas—though to ensure that synthetic biology yields nurtured, it might also help expand it. 7
12 Leaders The Economist April 6th 2019
The Brexit negotiations
A step in the right direction
At last, Theresa May is seeking a cross-party consensus on Brexit. The eu should allow her enough time
t has been clear for months that the entrenched hostility of Many eu leaders, whose unanimous approval is needed for
Ihardline Tory Brexiteers and the Northern Irish Democratic any extension, may be reluctant to agree to it. Why give the vacil-
Unionist Party (dup) meant that Theresa May’s Brexit deal would lating Brits more time to squabble when they may still never
not pass in Parliament. This week the prime minister accepted come to an agreement? Why not just push Britain out now? The
reality by offering instead to negotiate with Jeremy Corbyn, the answer is that a no-deal Brexit would damage not just Britain but
leader of the opposition Labour Party, on alternatives that could also many eu countries, most notably Ireland. If Mrs May can as-
win a majority. Cross-party talks between two leaders notorious- sure her fellow leaders that she is pursuing a new softer form of
ly reluctant to compromise may well fail, but if that happens Mrs Brexit, they should give her whatever time it takes—even until
May has offered to be bound by whatever solution mps them- the end of the year if need be.
selves support in further rounds of Commons voting. A complication is that, if Britain is still a member in late May,
There are two reasons to welcome this changed approach. eu leaders have made clear they will insist on it taking part in
The first is that, since Mrs May will surely have to erase some of elections to the European Parliament. Mrs May is against this
the “red lines” she laid out over two years ago, the outcome looks idea, as are some in other countries who are fretful about an up-
almost certain to be a softer Brexit. This is likely surge of populist meps. But the new European
to start with acceptance of a permanent customs Parliament is likely to have many more popu-
union, which is both the clearest Labour objec- lists in it whether or not Britons vote. If the al-
tive and one that failed to win a Commons ma- ternative is a no-deal Brexit, Britain should
jority by only three votes this week. It may also agree to elect meps, even if they sit for only a rel-
imply closer alignment with the eu’s single- atively short time.
market rules. None of this will be easy. It will demand pa-
The second reason is that Mrs May has come tience and far-sightedness from eu leaders who
out firmly against leaving with no deal (see Brit- are understandably fed up. It will demand sus-
ain section). Hardline Brexiteers persist in pooh-poohing con- tained pragmatism and political deftness from a prime minister
cerns about the potential costs of a no-deal Brexit as just another who has hitherto shown little evidence of either. And even if a
round of Project Fear. But as a briefing paper written for minis- softer Brexit eventually emerges, it will have loud, angry detrac-
ters by the cabinet secretary shows, the risks to the economy and tors on both sides. Tory hardliners will declare it to be a betrayal
to security are both genuine and serious. That the prime minis- of the 2016 referendum. Hard-core remainers will decry it as an
ter is now committed against pursuing this destructive option as act of self-harm, a much worse outcome than staying in the eu.
a deliberate policy is a welcome shift. There is no easy way to manage the venom and fury on both
That does not mean a no-deal Brexit cannot happen, as it re- sides—and the divisions in the country as a whole. But the most
mains the default choice on April 12th if no other action is taken. promising is to agree as part of a cross-party deal to put the out-
But Mrs May has confirmed that she will ask the eu for a further come to a confirmatory referendum, an idea that lost by only 12
extension of this deadline at the summit to be held on April10th. votes in the Commons this week. Mrs May’s belated willingness
And, to ensure her spine stays stiffened, mps are seeking to in- to seek consensus is welcome. Her next step should be to pro-
struct her in a new law to call for more time. mise that any deal will be put to the public for a final say.7
Algeria
So begins the real battle
The resignation of President Abdelaziz Bouteflika is a good start. Now overhaul the system that kept him in power
fter weeks of angry protests, the streets of Algeria erupted try. His fall, therefore, is merely a symbolic victory. The old inval-
Aagain on April 2nd—this time in celebration. President Ab- id is gone, but if Algeria is to move to “the better future” that Mr
delaziz Bouteflika, who had clung to power for 20 years, had at Bouteflika—or, more likely, his coterie—wrote about in his resig-
last stepped down. Joyful Algerians, many of whom have known nation letter, then much bigger changes are needed.
only one leader, draped themselves in the national flag and The country is entering a period fraught with risk. Mr Boute-
spoke of a new era for the country. “Game over”, read one of the flika’s resignation was preceded by other empty concessions—a
banners hoisted by the crowd. new prime minister, vague promises of a political transition—
In fact the battle for Algeria is just beginning (see Middle East aimed at calming the masses. But these have emboldened the
& Africa section). Mr Bouteflika, who suffered a debilitating protesters, whose ambitions are growing. They will not be satis-
stroke in 2013, was merely a figurehead for a shadowy group of fied with the constitutional way forward, which would see Ab-
businessmen, politicians and generals who really run the coun- delkader Bensalah, the Speaker of the Senate and a Bouteflika 1
The Economist April 6th 2019 Leaders 13
2 loyalist, assume the presidency until an election is held. Many, of politics. He has chided those who sought to extend the presi-
quite rightly, want a new start. dent’s rule in order to preserve “their narrow personal interests”.
As the protesters move closer to the real centres of power, the Yet he himself backed Mr Bouteflika until it was clear that the
ruling cabal looks increasingly nervous. The army chief, General protests would not stop. The demonstrators want a clean break
Ahmed Gaid Salah, has tried—and failed—to control each step of from the out-of-touch old guard, including the general. Algeria
the process. Officials have warned of bloodshed, evoking Alge- needs soldiers who are comfortable with civilian rule, and who
ria’s civil war in their efforts to avoid real reform. That conflict value freedom as much as stability.
began after the last free and fair parliamentary election, in 1991. A caretaker government is needed to oversee the process of
The first round of voting was won by Islamists, so the generals creating a more open system, starting with a national confer-
cancelled the rest. Some 200,000 people were killed in the fight- ence. But for that to happen, the opposition must get its act to-
ing that followed, which lasted for most of the 1990s. The civil gether. An umbrella organisation of liberals, Islamists and trade
war in neighbouring Libya also provides a dark warning of what unionists, to name just a few of the groups taking part in the
can happen when a dictator is overthrown. protests, was created last month on a vague platform of reforms,
There is certainly a danger of violence, but the protesters have but it already seems to be falling apart. If an election were to be
remained determinedly peaceful. Islamists are not nearly as held in 90 days, as the constitution requires, it is not clear who
powerful as they once were and, anyway, have kept mostly quiet. would represent the opposition or if it could even mount an ef-
Algeria’s tribal divisions are less pronounced than Libya’s. Tell- fective campaign. That has led to growing fears that Algeria
ingly, only those in power speak of the possibility of a new round could go the way of Egypt, where protesters toppled an old dicta-
of violence, perhaps out of habit. For decades they have justified tor in 2011, but the fracturing of the opposition eventually al-
their ruthlessness by pointing to the bloody past. Yet it is the rul- lowed the army to retake control. Tunisians, by contrast, worked
ing elite that has fallen to in-fighting. Several of Mr Bouteflika’s together to shore up their nascent democracy.
allies have been detained, some while allegedly trying to get In getting rid of Mr Bouteflika without bloodshed, the Algeri-
their ill-gotten gains out of the country. Some see a purge orches- an protesters have achieved much, but their victory is far from
trated by General Salah. complete. They need to learn from their neighbours, and unite
That is no way forward. The ruling cabal should follow Mr until a new regime is embedded. Peaceful transition to democra-
Bouteflika’s lead in giving up power—and so too should General cy is a rare flower in the Arab world’s political desert; but it could
Salah, who seems loth to relinquish the army’s role as the arbiter just flourish in Algeria’s parched soil. 7
European banks
The land of the living dead
Europe’s zombie banks need to rediscover their lust for life
s there any more miserable spectacle in global business than The banks’ second excuse is that their lousy profitability does
Ithat of Europe’s lenders? A decade after the crisis they are not really matter. Their capital buffers have been boosted, they
stumbling around in a fog of bad performance, defeatism and argue, so why should regulators and taxpayers care about the
complacency. European bank shares have sunk by 22% in the bottom line? And shareholders, the banks hint, have learned to
past 12 months. Deutsche Bank and Commerzbank are conduct- live with the idea that European lenders are unable to make a re-
ing merger talks with all the skill and clarity of purpose of Brit- turn of 10%, the hurdle rate investors demand from American
ain’s Brexit negotiators. Two Nordic lenders, Danske Bank and banks and most other sectors (see Finance section).
Swedbank, are embroiled in a giant money-laundering scandal. This is bunkum, too. Profits do matter. They make banks saf-
The industry makes a puny return on equity of er: they can be used to absorb bad-debt costs or
6.5% and investors think it is worth less than its European banks rebuild capital buffers when recession strikes.
liquidation value. Amazingly, many European Return on equity, % 8 Depressed valuations show that far from toler-
banks and regulators are resigned to this state of 6 ating European banks, most investors eschew
affairs. In fact it is a danger to investors and to 4 them. As a result many lenders, including Deut-
Europe’s faltering economy. 2 sche, have too few blue-chip long-term institu-
The banks make two excuses, both of which 0 tional shareholders who are prepared to hold
are largely rubbish. One is that it is not their 2014 15 16 17 18 serially incompetent managers to account. And
fault. Unlike America, where banks have a re- when the next downturn comes and banks need
turn on equity of 12%, Europe does not have strongly positive to raise capital, which investor would be foolish enough to give
government-bond yields, or a pool of investment-banking pro- even more money to firms that do not regard allocating re-
fits like that on Wall Street, or a vast, integrated home market. All sources profitably as one of their responsibilities?
this is true, but European banks have been lamentably slow at Rather than accept this miserable situation, European banks
cutting their costs, something which is well within their control. need to do two things. First, embrace an efficiency and digitisa-
As a rough rule of thumb, efficient banks report cost-to-income tion drive. Costs are falling at an annual rate of about 4%, accord-
ratios below 50%. Yet almost three-quarters of European lenders ing to analysts at ubs. This is not enough. As consumers switch
have ratios above 60%. Redundant property, inefficient technol- to banking on their phones there are big opportunities to cut leg-
ogy and bloated executive perks are the order of the day. acy it spending and back-office and branch expenses. Lloyds, in 1
14 Leaders The Economist April 6th 2019
2 Britain, has cut its cost-income ratio to 49% and expects to get to tant enough to be subject to regular “stress tests”. The banks
close to 40% by 2020. The digital German arm of ing, a Dutch complain that the reason for this is that Europe has not harmo-
bank, boasts a return on equity of over 20% in a country that is nised its rules and regulations. But this is only half the story.
supposedly a bankers’ graveyard. If other banks do not do this Most big banks are loth to cede their independence, and their
they will soon find that they have lost market share to new digital bosses love the status that comes with running a big lender. And
finance and payments competitors—both fintech firms and the banks’ failure to get their own houses in order means that inves-
Silicon Valley giants such as Amazon—that can operate with a tors doubt that managers can handle integrating two big firms.
fraction of their costs and which treat customers better. European banks face two paths. The one they are on promises
Second, banks need to push for consolidation. The evidence financial and economic instability when the next recession
from America and Asia suggests that scale is becoming a bigger strikes, and long-term decline. The other path is to get fit for the
advantage in banking than ever before, allowing the huge invest- digital age and subject themselves to the financial disciplines
ments in technology platforms and data-analysis to take place. that American banks, and almost all other industries, accept as a
Europe has too many lenders—48 firms are considered impor- fact of life. It should not be a hard decision.7
Welfare in India
The beauty of breadth
Indian politicians are promising more cash for the poor. They should be less selective
ood king wenceslas thought of the poor when the weather getting bigger. Congress’s scheme to pay needy families 6,000
Gturned cold. Election season has the same effect on India’s rupees a month is better (see Asia section), but faces the practical
politicians. With national polls looming in April and May, the and political difficulties involved in targeting the poor.
two main political parties are competing to shower money on Targeting welfare is costly and difficult in a country like In-
the indigent. The governing Bharatiya Janata Party (bjp) has al- dia. How is the state supposed to identify the poorest 50m
ready started paying benefits to farmers who own less than two households in a country where income and spending are so hard
hectares (five acres) of land. The Congress party promises cash to track? If it looks for signs such as straw roofs, it will almost cer-
payments for the poorest 50m households. The new focus on the tainly miss many poor people, especially in the cities. The politi-
problem is admirable, but these ideas need rethinking. cal economy of targeted schemes is also tricky. In countries with
India has about 50m people living in extreme poverty, accord- minimal welfare states, schemes with few beneficiaries also
ing to the World Poverty Clock, an Austrian research project. have few supporters, and therefore risk being quietly wound
Many others are severely pinched. Yet India’s safety-net is both down or diminished by inflation. And any formula used to target
immensely complicated, with over 950 centrally funded the bottom 20% is likely to be so opaque that people will never
schemes and subsidies, and stingy. Old people protested in the know whether they should have been included or not, so cannot
capital last year, complaining that the central-government pen- fight for their entitlements. A workfare scheme in Argentina, tra-
sion of 200 rupees ($3) a month has been frozen bajar, was so well-targeted—75% of its benefi-
since 2007. Much of the money spent on welfare Population in extreme poverty ciaries were among the bottom 30%—that it lost
never gets to the poor. Numerous subsidies for 2019 estimate, m political support and was replaced by a benefit
fertiliser, power, water and so forth are snaffled 0 20 40 60 80 100 with broader appeal. As Amartya Sen, an Indian
Nigeria
by better-off farmers or go into officials’ pock- Congo economist, put it, benefits that go only to the
ets. A large rural employment scheme does India poor often end up being poor benefits.
mostly reach poor people, since nobody else is Ethiopia Two years ago a government report suggest-
prepared to dig ditches all day under the hot Madagascar ed a bold new approach. Instead of a universal
sun. But it is expensive to run and prevents par- basic income—an idea doing the rounds in rich
ticipants from doing any other work. A study carried out in Bihar, countries—create a nearly universal scheme from which you ex-
a poor state, by the World Bank estimated that you could cut pov- clude the richest quarter of the population. They are easier (and
erty at least as much by taking the money for the scheme and di- therefore cheaper) to spot than the poorest. The report estimated
viding it among the entire population, whether poor or not. that poverty could be virtually eradicated at a cost of 5% of gdp—
It is welcome, then, that the parties are vying to come up with just about the same as the combined cost of the existing schemes
better schemes. And it is especially encouraging that both the and subsidies. Transfers to the very poor would be lower under
bjp and Congress are proposing simply to give people money. Congress’s plan, but since a broader scheme’s chances of survival
Distributing cash is cheaper than handing out jobs or food, and are higher, indigent Indians would probably benefit more in the
allows poor people to buy whatever they need. As bank accounts long run.
spread and India’s biometric id system matures, it should be Binning the hotch-potch of existing schemes and imple-
possible to curb fraud and theft. menting a radical new system would be politically difficult. Yet
Yet the politicians’ plans are ill thought out. Even if the bjp’s the broader plan may have a better chance than a targeted
bung to farmers manages to get round the problem that many scheme, since many of the beneficiaries of the old schemes
lack clear land titles, it will do nothing for landless labourers, would get some cash under the new one. And it must be worth a
who are often poorer than smallholders. It would have perverse try. The eradication of one of the world’s very worst problems is a
consequences, too, for it would discourage small farmers from prize worth fighting for.7